Taking the Sting Out of a Contingency Clause
Keep It Ethical
If you’re unsure, consult an attorney; don’t engage in activities that might constitute the practice of law. —Article 13
In reviewing the offer with the sellers, pay particular attention to contingency clauses. What may seem to be a minor point now might destroy the deal later.
Be sure that a contingency clause:
- States the exact purpose of the contingency so its scope cannot be expanded later in the transaction.
- States exactly what will happen, including any forfeitures or damages owed, if a condition does not occur.
- Avoids subjective language — a suitable home, in a reasonable amount of time — which can lead to disputes later. Also, each contingency should be broken down with two words: ‘If’ and ‘then.
- Sets realistic time limits — neither unreasonably short or too lenient — to complete contingency conditions.
- Indicates if the seller can cure any problems found during an inspection.
- Is removed from the contract once the condition has been met; or is initialed by both parties as it is satisfied.
Portions adapted from “Contingency Clauses,” by Ted Marois (Sacramento REALTOR®, May 1989)
Watch Your Wording
Improper wording can be confusing and misleading. Be sure to always state your intention clearly and with as much detail as possible.
Bad: "This contract is contingent upon buyer obtaining financing." Does it mean the buyer has an obligation to go obtain financing and to cooperate? Within what period of time? It just doesn’t cover what happens if the buyer doesn’t get a loan? What happens then?
Good: "This contract is contingent upon buyer obtaining a new conventional loan at an interest rate not to exceed 7 percent. If, after making good faith efforts to obtain that loan, the buyer is unable to qualify, then the buyer may cancel, in which case the earnest money will be refunded."
Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.