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How Do Contingencies Affect Residential Real Estate Transactions?

Posted on in DuPage County Real Estate Attorney

IL real estate lawyerBuying or selling a home is a complex financial transaction. There are a number of issues that can affect a sale, and the parties will need to make sure their interests will be protected as they proceed with the home closing process. The contingencies that will be included in a residential real estate purchase contract can play a significant role in a home sale, and it is important for buyers and sellers to understand the types of terms that may be included and how these issues will affect them.

Common Contingencies in Purchase Agreements

After a buyer makes an offer to purchase a home, and this offer is accepted by the seller, a purchase agreement will be created that will outline the details of the transaction, including the closing date and the requirements that each party will need to meet. A contract will include multiple types of contingencies, which are provisions that state that certain requirements will need to be met in order for the transaction to proceed. These terms may allow either party to terminate the transaction based on certain factors, including situations that would place them in a difficult financial position.

A purchase agreement may include contingencies that address:

  • Financing - A home mortgage is necessary to purchase residential property, and a buyer will be required to obtain a loan for the agreed price. In most cases, a contract will provide a buyer with a certain amount of time to receive approval for a home loan. This contingency may allow the buyer to back out of the sale if they cannot receive a mortgage at a certain interest rate or with acceptable terms before the closing date.
  • Appraisal - A buyer’s ability to obtain financing will often depend on a lender’s determination of the home’s value. To address this issue, a contract may include terms stating that the buyer can back out of the sale if an appraisal finds that the value of the home is below a certain amount.
  • Home sale - A buyer will most likely want to sell their current home before assuming a new mortgage. A contract may allow the buyer to terminate the sale if they do not sell their home before a certain date. A kick-out clause may also be included that will allow the seller to find a different buyer in cases where a buyer has not yet sold their current home.
  • Home inspection - The buyer will have the right to inspect the home and determine whether there are any defects that should be repaired or other issues that may potentially cause problems in the future. The purchase contract may address how these issues will be handled, including detailing whether the seller will make repairs or provide money to address certain types of defects. If the parties cannot agree on how to resolve issues found during an inspection, the transaction may be terminated.
  • Title - Before the closing date, a title search will determine whether there are any encumbrances on the home, such as liens, or any other issues that will affect the ability to transfer ownership of the property. The contract may specify when either party may be able to terminate the transaction due to title issues.
  • Insurance - In some cases, a lender may require a purchase contract to include terms requiring the buyer to obtain homeowner’s insurance. If the buyer is unable to do so, either party may back out of the sale.

Contact Our Wheaton Residential Real Estate Attorneys

Whether you are planning to buy or sell a home, the lawyers of Stock, Carlson & Asso. LLC can help you create a purchase contract that includes the necessary contingencies, protect your financial interests, and ensure that you will be able to complete the transaction successfully. Contact our DuPage County real estate lawyers at 630-665-2500 to get the legal help you need.

Sources:

https://www.nerdwallet.com/article/mortgages/buying-a-house-contingencies-disclosures

https://www.bankrate.com/real-estate/contingency-clause/

https://www.fortunebuilders.com/real-estate-contract/

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