July 5, 2024

Is "contingency" a bad word in real estate?

The short answer is no. 

Ever heard the word "contingency" and thought it sounded like a bad thing? In the world of real estate, it’s actually your best friend as a buyer! Let’s dive into what contingencies are and why they can be a lifesaver in the homebuying process.

Why Contingencies?

Contingencies are like your safety net, ensuring you don't end up with a property that doesn't meet your expectations. According to the Northern Virginia Association of Realtors (NVAR), these clauses can protect your earnest money deposit and give you an out if certain conditions aren't met. 🏡

Common Contingencies

1. Home Inspection
   A home inspection contingency allows you to negotiate repairs or even back out of the sale if significant issues are found. NVAR reports that about 80% of buyers include this contingency in their contracts.

2. Appraisal
   This one ensures the home's value matches the agreed price. If the appraisal comes in low, you can renegotiate or walk away. In 2023, around 65% of contracts had an appraisal contingency, reflecting its importance in today's market.

3. Financing
   A financing contingency gives you the time to secure a mortgage. If you can’t get the loan, you can cancel the deal without penalty. This clause was included in about 75% of home purchase agreements last year, highlighting its significance.

4. Sale of Current Home
   If you need to sell your current home before buying a new one, this contingency is for you. While less common, with about 20% of buyers using it, it’s a lifesaver for those in transition.

Less Common, But Crucial

1. Title Contingency
   Ensures the property has a clear title, free from legal issues. About 10% of buyers include this, but it’s crucial for avoiding future headaches.

2. HOA Review
   If the property is in a community with a Homeowners Association, this contingency allows you to review the rules and regulations. This contingency is required in our market and CANNOT be waived if you are buying a home in a CIC (or Common Interest Community) in Coastal Virginia. Elsewhere, approximately 15% of buyers opt for this to ensure they’re comfortable with the HOA's terms.

Practical Tips

• Discuss with Your Agent: Tailor contingencies to your needs. Not every deal requires every contingency.

• Stay Informed: Understanding the market can help you decide which contingencies to include.

• Be Flexible: Sometimes, waiving certain contingencies can make your offer more attractive, but always weigh the risks.

Using Contingencies Strategically

Contingencies are powerful tools, but using them strategically is key to ensuring a successful transaction. Here’s how:

• Prioritize Essentials: Focus on the most critical contingencies that protect you the most, like home inspection and financing.

• Limit the Number: Too many contingencies can make sellers wary. Stick to the ones you truly need.

• Communicate Clearly: Work with your agent to explain your contingencies to the seller. Transparency can ease concerns and build trust.

• Be Ready to Compromise: In a competitive market, be prepared to negotiate. Sometimes, removing less critical contingencies can make your offer more appealing.

Joke Break!

Knock, knock.
Who's there?
Wooden shoe.
Wooden shoe who?
Wooden shoe like to hear more about contingencies? 😉

I am truly sorry for that... I promised my step-daughter I'd include it. ⬆️

Wrap Up

Remember, contingencies are part of your buyer toolkit during the homebuying process. They provide peace of mind and protect your investment. So, next time you're looking at contracts, think about which contingencies will keep you secure and happy in your new home.

Your partner in all things real estate,
Ally

Questions about contingencies? Want to chat more about the homebuying process? Set up a Real Estate Goals Consultation Here: Let's Get In Touch!

All statistics in this article via NVAR: Northern Virginia Association of Realtors