Understanding contingencies is important when you are considering making an offer on a property. A contingency is a condition in the Purchase Agreement that allows the buyer(s) to remove themselves from the contract with their deposit refunded if certain conditions are not met after their offer is presented.
Some of the most common contingencies are: building inspection, financing or mortgage, clean title, and the appraisal. Other contingencies can be more detailed, such as the seller must fix up the front yard by planting certain flowers, or that the buyer must have time to sell his home before closing. Contingencies must be fulfilled within a certain time frame. Once a contingency has been approved, the buyer and seller must give a signed document removing that contingency from the contract to escrow and the real estate agent. Keep in mind, if the buyer and seller do not sign off on the contingency after the deadline arrives, the contingency will be considered accepted.
Contingencies are critical to the close of escrow because they eliminate any uncertainties over who is responsible for certain costs if contingencies are not or cannot be fulfilled. They protect both the buyer and the seller from any surprises and allow a way out of the contract. The close of escrow will take place after the contingencies are removed.