A contingency is the part of a purchase/sales agreement that spells out specific actions or conditions that must be met in order for the contract to become legal and binding and so take actual effect. Contingencies are an integral part of most such contracts, and they affect both buyers and sellers. Because contingencies stipulate that a certain action has to take place before the transaction can be finalized and closing takes place, it’s important for both buyers and sellers to know what they’re getting into with contingencies. So here’s what you need to know about contingencies when buying or selling a house in Chicago.
Common Types of Contingencies
The most common types of contingencies having to do with buying or selling a house in Chicago (though there are others that typically have to do with repairs) are the sale and settlement contingency and the settlement contingency. So let’s take a look . . .
SALE AND SETTLEMENT CONTINGENCY
“As the name implies, a sale and settlement contingency is dependent upon the buyer selling their home. This type of contingency is used if the buyer has not yet received and accepted an offer to purchase their current home. In general, this type of contingency allows a seller to continue to market the home to other potential buyers, with the stipulation that the buyer will be given the opportunity to remove the sale and settlement contingency within a specified period(typically 24-48 hours) if the seller receives another offer.”
If, however, the buyer is unable to remove this contingency, the contract is then terminated. At this point, the seller can accept other offers but must return the buyer’s earnest money deposit. For a fuller explanation, you can contact a Chicago agent at (630) 984-0000.
This type of contingency is utilized “if the buyer has already marketed their property, has a contract in hand, and a closing date on the calendar.” A settlement contingency protects the buyer if the sale falls through – a property is never really sold until closing occurs.
“If the buyer’s home closes by the specified date, the contract remains valid. If the home does not close, the contract can be terminated.”
What Buyers Need to Know
Contingencies have an impact on both buying and selling a house in Chicago. But here’s what buyers need to know . . .
Many buyers are trading up and typically need to sell their current home in order to buy the newer, bigger, better one. “Home sale contingency gives buyers the time they need to sell and close before committing to a new home. Buyers can avoid owning two homes and holding two mortgages at one time while waiting for their own home to sell. A home sale contingency can also make for a seamless transaction: the buyer can sell one home and move into the next since the new home is already “locked in.”
This kind of sale contingency can provide buyers a lot of peace of mind. They will still, however, have to pay the other costs of buying a home, such as inspection and appraisal fees.
But without such a contingency, buyers who are in the situation may have to pay more for the home. That’s because the seller is taking a risk, gambling on the buyer’s ability to sell her current home, and will expect to compensated for entering into such a risky deal. After, all if the buyer can’t sell her current home, the seller’s sale falls through.
What Sellers Need to Know
Now, if you’re selling a house in Chicago, here’s what you need to know about contingencies . . .
As we just pointed out, a sale contingency can be pretty risky for sellers because they have no guarantee that buyers will actually sell their current home. “Even if the contract allows the seller to continue to market the property and accept offers, the house may be listed ‘under contract,’ making it less attractive to other potential buyers. Many people looking for homes will steer clear of a property that is under contract because they don’t want to waste time and risk falling in love with a property they may never have the chance to buy.”
So, as a seller, before agreeing to a sale contingency, you should consider these points about the buyer’s home that she needs to sell:
- Is the home already listed? “If not, this is usually a red flag because it indicates the potential buyer is just thinking about buying and selling at this point.
- Is the home priced to sell?
- How long has the home been on the market? If it has been listed for some time, this may indicate improper pricing or major problems with the home.
Your Chicago agent can help you make these critical determinations. Just call (630) 984-0000 to discover more.
If, however, the buyer’s current home has been on the market for some, a sale contingency can be a good thing for you if you set time limits for a sale. “If the seller has had trouble finding a buyer, a contract with a contingency is still a contract and there is a chance that the property will sell. In many cases, it is advisable to limit the amount of time the buyer has to sell a home to one to four weeks. This puts pressure on the buyer to lower the asking price and make a sale while preventing the seller from losing too much time in the event that the transaction does not close.”
The Best Step for Buying or Selling a House in Chicago With Contingencies
Basically, then, in buying and selling a house in Chicago, contingencies mostly protect buyers while presenting sellers a certain amount of risk. To further complicate matters, contingencies are part of a legally binding contract, and the details must be carefully spelled out in the right way. So whether you’re a buyer or seller, you need to understand all the contingency details and their legal implications.
The problem, though, is that this usually falls outside the experience and expertise of most buyers and sellers. And that’s why it’s so important to have an experienced local agent in your corner. So if you’re buying or selling a house in Chicago with contingencies, contact us today at (630) 984-0000.