As part of her on going campaign to educate would be investors, this week Real Estate Expert Debora Matteau gave an in-dept explanation of contingencies in real estate contracts and the impact on transactions. In a series of lectures delivered to first year commercial real estate investors - Debora Matteau explained the importance of being able to rescind the purchase of the 2nd property if funding for the 1st deal doesn't go through.
Explanation of Contingency
Contingencies, in general, are conditions of a contract. They need to be fulfilled for the contract to go through. In real estate, contingencies can be put in place that protect buyers and sellers from financial or other harm. Contingencies are written so that all parties to the real estate contract understand the they need to fulfill certain obligations before the real estate closing can happen.
The most common contingencies you'll hear about are financing contingencies and inspection contingencies, although there are many others. Financing contingencies can be written in many different ways, but the overall point is to make sure the buyer properly applies for financing, and to protect that buyer from financial loss in case the financing is not available.
Financing contingencies will often have a timeline in which the buyer must apply for a mortgage. The terms of the financing are often disclosed to the seller: down payment, type of loan, etc. The seller uses this information to determine the strength of the buyer's ability to purchase the property. If the buyer follows the terms of the contract, and the lending institution can't deliver the funds to make the home loan possible, the buyer usually has an option to get out of the purchase contract without losing earnest money.
Inspection contingencies work in a similar way. They will have a timeline in which the buyer can inspect the property (which should be done with a professional inspector), and then respond to the seller. The buyers can accept the property in its current condition, ask the seller for repairs or a monetary credit, or disapprove the inspection and end the contract. Debore Matteau elaborated on how contingencies can vary based on timelines and disclosures necessary to enforce them, so investors should consult with an experienced a real estate attorney to make sure they understand your contract.
Debora Matteau Explains: How Contingencies Could Affect Residential Real Estate Transactions?
Contingencies are the basis for contracts going forward, or contracts dying. Buyers use them as their safeguards. If you're buying a home, you'll need to pay strict attention to the timelines on your contingencies. Have you applied for a mortgage in the right amount of time? Buyers should get pre-approved before even visiting properties for sale, but the contingency may allow more time.
For more educational lectures on residential and commercial real estate investing please visit https://www.linkedin.com/pub/debora-matteau/6a/46a/14a
