Whether a buyer is making an offer to purchase a property from a seller or considering a counter-offer received from a seller, he or she must be very careful to ensure that the proposal includes certain clauses called contingencies which provide important protections for the buyer. A contingency is defined as an agreed to excuse for a party’s non-performance of the contract. Simply, it is a condition written into the contract which allows a party to withdraw without being in breach.
The most used contingency in a contract for the purchase and sale of residential property is the financing contingency. This clause allows for a buyer to withdraw from the contract in the event he or she does not obtain financing for the purchase of the property. While the standard form of real estate contracts places certain requirements upon the buyer as to when they must apply, notification to seller when there is a problem with the loan, and give the seller the right to cancel the contract or offer the buyer his own financing, it is important for both buyers and sellers to understand the requirements set forth in the clause. Buyers should make sure that the clause provides them an opportunity to withdraw from the contract if financing is not obtainable after reasonable efforts. Sellers should make sure that the financing contingency is not too broad to allow a buyer to utilize the financing contingency if he or she does not receive financing “on terms and conditions acceptable to buyer”.
The terms and conditions contained in a real estate contract set forth requirements and obligations that have direct impact on the buyers and sellers of property. A proper understanding of these clauses is vital to protecting your interests in real estate transactions. Please call an experienced attorney at the law firm of Paulson & Paulson, PLC for more information.