What is a Contingency in Real Estate Law?

The rules surrounding real estate transactions can be complicated at the best of times, even before getting into the potential problems that can arise. Fortunately, you can place terms in your real estate contract, known as contingencies, to help protect against unforeseen problems. But what exactly is a contingency in the context of real estate law, and how could it help protect you?

What is a Contingency?

In the context of real estate law, a contingency is a term in a contract that may come into effect, depending on what does or does not happen. Often, these contingencies are used to protect against unforeseen issues that might complicate the sale of the property, or which might result in a legal dispute. In this way, both sides can help avoid problems that might lead to future litigation.

What Does a Contingency Do?

A contingency in a real estate contract will typically lay out some obligation that either the buyer or the seller (or sometimes both) must fulfill in order for the sale to go forward. This obligation must typically be fulfilled prior to some specific date, which will also be dictated in the contract. If one or both sides doesn’t keep their side of the bargain by failing to satisfy the terms of the contingency, the contract will not be satisfied and the sale will likely be cancelled.

What Kinds of Contingencies Might Be Found in Your Contract?

There are a number of potential contingencies you are likely to see in a real estate contract. These include, but are not limited to: 

• Inspection contingency: The property must be inspected to determine if there are any serious defects, such as structural damage or the presence of mold or pests.
• Title contingency: A title search must be done in order to determine if there are any title defects, such as an unpaid mortgage or undisclosed easements or covenants.
• Appraisal contingency: The property must be appraised to determine its true market value, which must be the agreed upon sale price at minimum.
• Mortgage contingency: The buyer must obtain financing to purchase the home from a bank or other mortgage lender.
• Homeowners insurance contingency: The buyer must obtain a homeowners insurance policy prior to the sale.

What Should You Do?

If you are looking to buy or sell real estate, you should make sure you first speak to a lawyer with experience handling real estate transactions. They can help you review your contract to ensure your rights are protected, while making sure you are aware of all risks and obligations. That way, you have the best chance possible to successfully conclude the transaction while minimizing your legal risks.

At David J. Lorber & Associates, PLLC, we assist clients throughout New York who are looking to buy or sell real estate. We will guide you through the process and help you minimize your legal and financial risks. Call us at (631) 750-0900 or contact us online to schedule your Free consultation at our Setauket office.