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Writer's pictureSean Skirrow

Home Sale Contingency for Buyers and Sellers

Updated: Nov 2, 2022


Home Sale Contingency for Buyers and Sellers June 12, 2019Home Buying, Home Selling, Real Estate


If you’re a first time home buyer or seller, it is imperative that you familiarize yourself with potential contingency clauses that may apply to your new home. These clauses are important and should be taken seriously because they can save you a lot of time, money, and unnecessary frustration down the line.

What Does Contingent Mean in Real Estate? Contingency clauses are agreements put in place between the buyer and seller that are added to the contract to protect both parties. They lay out guidelines and actions that must be met by one or both parties in order for the contract to become binding. Common contingency clauses for real estate contracts are:

  • Home Sale Contingency

  • Inspection Contingency

  • Appraisal Contingency

  • Financing Contingency

  • Kick Out Clause

Each of these contingency clauses has a special place in protecting your interests (and wallet) before your real estate contract is signed. Keep in mind that all contingencies can be tailored to suit the interests of both buyer and seller, and your options will be exclusive to the details of your clause.

Home Sale Contingency A home sale contingency is a common clause included in real estate contracts or offers that is agreed upon by both the buyer and seller. This clause can lock in the buyer’s offer for an agreed upon amount of time and allow them to sell their current home so they can afford their next one. Since most buyers need to sell their current home before being able to afford their next one, the home sale contingency clause is included in most home sale contracts.

Pro Tip: Home sale contingency clauses are an important step in selling a home before paying off the mortgage. With a home sale contingency clause, one of two things can happen. Either the buyer sells their current home on or before the deadline, and can move forward with the contract, or the buyer does not sell their home by the deadline and the contract is terminated.

Types of Home Sale Contingency Clauses There are two types of home sale contingency clauses:

  • Sale and Settlement Contingency

  • Settlement Contingency

A sale and settlement contingency allows extra time for buyers to sell their current home without the risk of losing the offer they already submitted on their new dream home if they have not received or accepted any offers on their home by the designated date.

With a sale and settlement contingency, sellers are free to continue marketing their home until either the buyer is able to purchase it or they receive and pursue a better offer. Often, if the seller receives and pursues a better offer for their home, either the buyer or seller can decide to terminate the contract. If the seller terminates the contract, they must return any money the contingent buyer put down.

A settlement contingency is used for buyers who have accepted an offer on their current home and have a contract and settlement date established for its sale. If the sale falls through for any reason, they are protected for a period of time from losing their offer to buy another home.

Home Inspection Contingency

A home inspection contingency, also referred to as the due diligence contingency, allows buyers to back out of a contract if a home inspector finds critical issues during the pre-purchase inspection that the seller refuses to fix or compensate for. You should never go through with a buying a home without hiring an experienced professional home inspector first. Similar to how lemon laws protect you from buying a new car that just doesn’t work right, the home inspection contingency can protect you from buying a home with substantial well-hidden problems. You may think the home is safe, the structure is sound, and all the major systems work as they should, just to find out a few months down the road that the house had serious issues that will cost tens – or even hundreds – of thousands of dollars to fix.

Depending on the agreed upon terms of the home inspection contingency, the buyer can approve the pre-purchase home inspection report and move forward, back out of the contract due to unexpected issues, request time for further inspections, or request the seller to pay for repairs. If the buyer requested the seller to pay for repairs and the seller refuses, the buyer is free to back out of the contract.

Who Pays for a Home Inspection? In Florida, the buyer typically pays for the cost of a pre-purchase home inspection unless otherwise agreed upon. A pre-purchase home inspection should be scheduled as soon as possible to allow time for needed repairs and to keep the closing time unaffected. Most clauses only provide several days to report inspection findings, so the sooner you schedule your pre-purchase home inspection the better.

Pro Tip: While not required, a pre-listing home inspection can help sellers speed up the sale of their home and, in some cases, get a higher asking price than expected.

How Much Does a Home Inspection Cost? The average cost of a home inspection in Florida depends on the following factors:

  • The size of your home

  • What type of home you have

  • Services included

  • Additional services you wish to include

  • Whether there are any detached structures, such as a garage or hangar

Standard home inspections can range anywhere from $180 for small condos to $500 for homes with up to 4,000 square feet. To put the cost into perspective, a faulty, leaking roof in Florida, on average, can cost a homeowner anywhere from $5,000 to $15,000 – and that’s if the water hasn’t caused additional damage throughout the house. If your central AC needs to be replaced, you can expect to shell out an average of $4,500 to $8,000 to replace it. The cost of an inspection is minuscule when compared to the avoidable nightmares you could be facing by not scheduling a pre-purchase home inspection before buying your next home.

Appraisal Contingency An appraisal contingency is set in place to protect the home buyer from potentially paying more than the property is actually worth based off of the official appraisal. A home appraisal is an unbiased, professional estimate of a home’s fair market value, usually based off of its condition, location, and features.

Pro Tip: Timing is key. Many clauses include terms that will not allow the buyer to back out of the contract if they have not presented the appraisal issues to the seller within a specified amount of time. Appraisal contingencies may state that if the appraisal is lower than the sale price, the buyer can choose to move forward or terminate the contract, or the seller may have the option to lower the sale price.

Financing Contingency A financing contingency, or mortgage contingency, gives the home buyer time to apply for and secure a home loan from a lender, such as a Florida FHA loan. This clause protects the buyer by allowing them to back out of the contract in the event they are unable to secure a loan. Typically, the financing contingency also includes a specified number of days the buyer has to either back out of the contract or request an extension. Failure to do either by the deadline can result in the buyer being obligated to purchase the home, even if they were unable to secure a loan. In order for the extension to be accepted, the seller must agree to the request in writing.

Kick Out Clause A kick out clause is used to protect the seller’s best interests, and goes hand in hand with the home sale contingency. This clause allows the seller to provide the original buyer a certain amount of time to remove the home sale contingency and go forward with the contract while continuing to market their home. While sellers understand that buyers may need time to sell their homes, sellers may also miss out on potential buyers in the event the original buyer backs out or cannot sell their home by the agreed upon time. The kickoff clause allows the seller to find other interested buyers they can turn to if the original buyer falls through.

Florida Home Inspection For many people, buying a house is a major financial decision that you want to have confidence in. Similarly, it’s important to pay attention to the details of your contract if you’re selling your home. While the inspection contingency is just one of the contingency clauses you may find in your real estate contract, the benefits of getting the terms right and knowing what to expect greatly outweigh forgoing an inspection. If you’re ready to schedule your pre-purchase or pre-listing inspection before buying or selling your home, give us a call at 386-383-3270.

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