What Are Contingencies in Real Estate?
Real estate agents encounter difficulties with properties and must navigate them effectively in oder to help their client acieve their goals. Real estate contingencies are one of these things. Learn about a contingency in real estate and how you can help your clients understand them. At Kentuckiana Real Estate Academy, we can prepare you for many of the experiences you’ll encounter in your real estate career, including contingencies
What Is a Contingency in Real Estate?
A real estate contingency means that a buyer and a seller have agreed to a sale, but only if certain conditions are met. Contingencies are normal for real estate transactions. They protect the buyer and the seller alike.
Types of Contingencies in Real Estate
There are many different types of contingencies you may encounter as a real estate agent. Here are some of the most common issues and how you can help your client navigate them.
#1: Home Inspection Contingencies
These allow the buyer to hire a professional home inspector. Then, they can request repairs for issues, renegotiate the price with the necessary repairs in mind, or back out of the deal entirely.
#2: Home Sale Contingency
Most people need to sell their current home, which has a mortgage, before they can afford to buy a new home. This contingency lets you make an offer on another home contingent upon selling your existing home. This may make your client unwelcome to some sellers because it introduces the variables that they cannot control.
#3: Financing Contingency
If financing falls through, the buyer can no longer uphold their offer on the house, and this contingency protects them by letting the buyer terminate and typically recover earnest money if financing fails within the contingency period. This can also benefit your client if interest rates are highly in flux—financing contingencies are usually written with a maximum acceptable interest rate, so the buyer can exit if rates exceed that figure.
#4: Appraisal Contingency
An appraisal contingency protects a buyer from paying more for the home than it’s worth. Additionally, the lender generally will not loan the buyer more than it’s worth. If the appraisal comes back for less than the offered price, the price can be renegotiated.
#5: Kick-Out Clause Contingency
The seller might accept a contingent offer that includes a home-sale contingency with a kick-out clause. This means they’ll continue marketing the home while the buyer attempts to sell their home. If the seller finds another buyer, they kick your client out.
Your Role in Real Estate Contingencies
As a real estate agent or broker, you can help your client by recommending action. Contingencies aren't open-ended—each one has a negotiated time window and if these protections lapse, your client can be on the hook for money.
Point them to the resources they need—like good local home inspectors—and take time preparing them for what they might find in different homes. Accurately appraising the house and working to help the buyer sell their house can all make for smoother transitions. Make sound recommendations to clients and make sure they know what they’re getting into. It’s better to have them in a house they’ll love and know they need to fix up than in a house with problems they didn’t anticipate.
Contact Us to Begin a Career in Real Estate
If you’re ready for a career that is flexible, intense, and thriving, real estate could be right for you. At Kentuckiana Real Estate Academy, we offer real estate pre-licensure courses that can prepare you for the real estate licensing exam in as little as two weeks. Our courses are taught by industry professionals who can prepare you for real-world situations, including real estate contingencies.
To get started with our courses or learn more, call (859) 317-4846 or send a message through our contact form. We proudly serve the areas surrounding Louisville and Lexington, KY.
