It’s important to remember that after combing through all of the home listing and finally settling on a home that you feel confident in, that the offer you place on the home vests in the seller of the home the power to accept the contract and thus creates a legally binding contract. A surprising amount of people think that such real estate offers are just forays into negotiations — i.e., “let’s just talk about the price and if we agree, then we can ratify a contract.” Upon acceptance of the offer, the agreement is reduced to a rather length writing which includes several addenda (perhaps the most important of which I’ve previously discussed: Real Estate Contracts: Seller’s Disclosure Statement).
However, executing the contract does not finalize the real estate transaction.
In that contract, there are generally a number of contingencies that must be met before the closing date to complete the transaction. A contingency gives one party the right to back out of the contract. Common contingency provisions include a home inspection by the buyer which turns up poorly. Another common buyer contingency is the procurement of adequate financing. Sellers usually do not have as many contingencies, but it’s not uncommon to see clauses delaying the sale of a home until the seller finds a new residence.
Because the contingencies can completely erase the existence of any contractual obligations, they need to be written concretely and with definite deadlines. An “adequate financing” contingency needs to speak in specific terms as to what is adequate. Therefore, it’s important to review real estate contracts in depth. Ambiguous language often results in disputes and litigation.