When making an offer on a property Buyers may have contingencies that need to be considered when making a purchase. These contingencies are conditions that need to be addressed to not only meet lending requirements but also to give the Buyer a sense of safety nets while taking each step in the process of purchasing.

Here are the four common contingencies that every Buyer typically addresses when making an offer to purchase a home and what protection they provide to Buyers.

Home inspection contingency – This is a Buyers Continency and provides the opportunity for the Buyer to bring in a home inspector of their selection to provide an in depth look at the property overall condition including mechanicals, radon, moisture testing and more.

1. This is at the buyer’s expense, and a buyer’s contingency.
2. Has a stated time frame to perform all inspections and to accept, negotiate, or cancel.
3. If accepting or amending the purchase agreement by mutual agreement the buyer and seller will move forward with the purchase agreement.
4. IF the buyer elects to cancel within the stated time, earnest money is refunded to the buyer.
5. A home inspection does not provide or imply a home warranty by the seller or the home inspector for future condition. It is simply an inspection on that given day providing an overall property condition report.
6. The sellers may leave their home on the market for back up offers only subject to the first offer being cancelled and not miss marketing time.
7. Allowing the Buyers to inspect the property to their satisfaction also provides an additional record to the Sellers Property Disclosure as to the condition of the property.

Financing contingency -This is a Buyer Continency that states the purchase is subject to loan approval by the Buyers lender for the loan type and conditions stated in the purchase agreement.  This information is provided by the lender with a pre-approval letter and an estimate of monthly payments and cash needed to close, if any.

1. The Lender typically requires an application with information from the buyer regarding credit, employment, and current payments  and information regarding the property  such as an appraisal, clear title, and  plat drawing are typical.
2. A pre-approval letter should be provided to your realtor when writing an offer to purchase.
3. If the loan does not get approved, earnest money will be refunded to the buyer when specified in the purchase agreement.  

Appraisal contingency – An appraisal is typically required by the lender when financing the purchase of the property and is not typically wrote in as it is by default falls under the Financing Contingency. However, IF you have financial capabilities to purchase regardless of the appraisal you may want this clause added to your offer.  I recommend you talk to both your lender and realtor about the appraisal continency.

1. This is the Buyers expense as part of your lender fees
2. It provides the lender and buyer with confirmation the property’s value is supported   by the sale of other like kind properties
3. If the property does not appraise at value the Buyer has the option to pay the difference in value, negotiate with the seller for the lower value, or cancel the offer and receive a full refund of earnest money paid

Home sale contingency – This contingency gives the option for a Buyer to make an offer to purchase a home subject to their current home selling within a given time frame. This acts a safety net for the Buyer not to get caught owning two homes with two mortgage payments.

1. This contingency requires the buyer to list their home within a specified time frame.
2. There is also a time frame implied for a Buyer to sell their current home and perform by the date of closing on the purchase agreement.
3. This contingency will allow the Seller to continue to market their home and the option of accepting an offer as a backup offers and at any time may request you to remove the home sale contingency or cancel with in the specified time frame that is stated in your accepted offer.
4. IF you are unable to sell your home during  in the time period stated the  earnest money will be refunded to you and you will sign a Cancellation with the seller, which will allow the seller to move forward with the backup offer.
5. This contingency allows the seller to accept an offer and not miss marketing time.

Well & Septic Inspection Contingencies – This contingency is added to a purchase agreement when the seller is waiting on the inspections for their well and septic tests.   Most buyers are wanting to ensure the well water test meet the Minnesota Drinking Water standards and the septic complies with the County and State requirements for selling a property.   IF the well or septic do not meet the requirements the buyer and seller may come to a mutual agreement or cancel if they do not come to a mutual agreement.  

Home Purchase Contingency- This is a sellers contingency that may be used when a seller knows they need to find a home where they are moving to. There is not a specific form for this continency in the state of Minnesota but a clause maybe added to the purchase agreement much like the contingency to sell a home.  This provides the seller the opportunity to offer their home for sale subject to finding suitable housing of their choice within a time frame. When accepting an offer and moving forwards a seller must be mindful of the buyers’ contingencies in the offer. IF they do not find a home typically the earnest money paid by the buyer would be refunded to the buyer.

Other Contingencies – Other conditions may be a concern to a buyer that need to happen to make their move.  For example, subject to accepting a new position of employment, identifying property boundaries, property survey, shared well agreements, and easements are some of the additional conditions that maybe applicable.  These contingencies be added and personalized to your situation, keep in mind the contingencies should be reasonable to both parties, have a deadline, and outline what the buyer and seller can expect and who gets the earnest money if it doesn’t work out.

Contingencies offer a sort of “safety net”. Contingencies are conditions that need to be met to satisfy a concern by one or both parties.  We offer free consultation for buyer and sellers, if you are considering making a move, reach out and let us know what questions you may have specific to your situation.

Roxanne Johnson, Broker, ABR, CRS, GRI