Every party involved in a residential real estate transaction has a degree of risk. Sellers are vulnerable to premises liability claims when they allow people to visit for tours and open houses. They are at risk of people damaging their property or stealing some of their assets.
Additionally, they can end up in a legal and financial state of limbo where they have not yet actually sold their house but are bound by a contract to do so in the near future. If the buyer backs out suddenly, they could lose money and may face many more months of uncertainty before they can finally complete the sale transaction.
Buyers are at risk of purchasing a property that doesn’t suit their needs. They are also at risk of losing the resources that allow them to purchase real property. Earnest money deposited with a real estate agent could be vulnerable unless buyers include contingencies when making offers on properties.
What is a contingency in a real estate offer?
Earnest money serves to demonstrate that a buyer is sincere in their intention to purchase a property. It is a sign that they are earnest and made the offer in good faith. If a buyer cancels the closing and puts a seller in a difficult financial situation, the seller can potentially ask to keep some or all of the earnest money.
Contingencies provide protection for earnest money in specific circumstances. They make the offer contingent on specific details. For example, an appraisal contingency allows the buyer to cancel the transaction without penalty if the appraisal comes in lower than the amount offered for the property.
An inspection contingency allows them the option of canceling if there are defects that turn up during the professional inspection that the seller did not previously disclose. There are many different types of contingencies, each of which can provide protection to buyers if they need to cancel a transaction that is no longer beneficial to them.
Buyers may need custom contracts
Many fill-in-the-blank real estate documents contain basic contingency language. However, buyers may not have the best protection available when using basic documents. Custom offer documents drafted by an attorney often extend far stronger protections to prospective buyers.
Having support when preparing for a residential real estate transaction can reduce a buyer’s risk and overall exposure. The inclusion of appropriate contingencies in an offer can help preserve earnest money should anything go wrong during a real estate transaction.