There's the dictionary definition of contingent.
Whether you're buying a home or selling a home in Northern Virginia, you're likely to have a contingent contract and need to understand the different contingencies that may exist.
In essence, a contract contingency is a mutually agreed upon escape clause that allows one of the parties to the real estate deal to unilaterally terminate the contract without penalty. The Regional Sales Contract in Northern Virginia (which is generally used in D.C.) contains a number of contingencies that can affect buyers and sellers of homes.
The most prevalent contract contingencies are the following:
- FINANCING -- These clauses make the contract dependent upon the purchaser getting approved for the mortgage financing for which they apply. Unless purchasing a home for all cash, a buyer will need a mortgage loan. If they cannot be approved for financing, they will not be able to buy the house. This contingency protects the buyer to be able to withdraw from the contract after a specified number of days if they cannot be approved for a mortgage.
- APPRAISAL -- An appraisal is a third party independent professional opinion as to the value of a home. Every lender requires an appraisal to be completed before they will proceed with lending money. The mortgage lender bases their lending decision upon the appraisal number and will only loan up to the amount of the appraisal or the sales price, whichever is lower.
What happens if an appraisal comes in lower than the sales price? There are several options for the buyer:
- Buyer can proceed with purchase regardless of appraisal value. The buyer will have to bring extra cash to the table to be able to buy the house.
- Buyer can ask the seller to lower the sales price to the appraised value and seller can agree to do so. More often than not, especially in a market with declining values, we see this option happening.
- Buyer and seller can negotiate a sales price somewhere in between the previously agreed upon sales price and the appraisal amount. This too happens regularly.
- If the buyer asks the seller to lower the agreed upon sales price and the seller flat out refuses, the buyer can void the contract.
- INSPECTION -- In my philosophy, EVERY buyer purchasing a home should get a home inspection. Read Take Your Northern Virginia Home for a Test Drive: The Importance of Home Inspections for further information.
Alongside the general home inspection, you can have a contingency for a radon inspection and for a termite inspection in the contract.
- SALE OF HOME -- If you are buying a home, but first need to sell your home, you'll need to use the Sale of Home contingency. This provides you with an out from the contract for the new home if your current home does not sell.
On the flip side, if you are the seller, you may have a "choice of home" contingency so that until you find your new home, you may not be held liable to consummate the sale of your home.
With contingencies, there's always the chance that a sale will fall through. When searching the MLS, you'll see contingencies marked as CNTG/KO, or CNTG/NO KO -- kickout versus no kickout. That's a discussion for another day and another blog post.
When it comes to contingencies and your rights and obligations under a contingent contract, it is advisable to discuss the implications with an informed real estate professional and/or a real estate attorney.
Oooh... I happen to be both. :)
Thank you for reading my blog post. If you like what you’ve read, then please: