Whether you’re buying or selling a home, the home purchase contract can make a crucial difference in the outcome — especially when things don’t go smoothly (as often happens). That’s why it’s important to protect yourself with contingency clauses.
These clauses can allow the buyer or the seller to back out of the deal and move on if various conditions aren’t met. It’s important to get the clauses in there that protect you and to carefully consider the ones sought by the other party.
Among the most common contingency clauses in home purchase contracts involve:
- Appraisals
- Financing
- Inspections (sometimes known as due diligence)
A common complicating factor in home sales is that the seller often is purchasing another home. Sometimes a potential buyer is selling their current home as well. Both sides need to protect themselves in case something goes awry with those other transactions.
Home sale contingencies and kick-out clauses
That’s why buyers will often seek a home sale contingency. This gives them a designated amount of time to sell their current residence and (if needed) get financing for the new one. With this contingency, if they’re not able to sell their home, they can back out of the deal without a penalty.
Not all sellers are able and/or willing to build this kind of time into their contract. If they are required to take their home off the market only to have a buyer back out, they can lose time, money and a potential sale.
That’s why some sellers will include a “kick-out clause.” With this contingency, they can continue to keep the home on the market. If a qualified buyer makes an offer and is ready to move in, the seller notifies the original buyer, and they have a designated number of days (usually just a few) to move forward with the purchase. If they don’t, the seller can sell to the other buyer.
There’s no such thing as a one-size-fits-all home purchase agreement. Home sales and purchases are among the largest transactions most people ever undertake. You want to negotiate a contract that fits your needs. That’s why it’s always wise to have experienced legal guidance.