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The most misunderstood clause in a real estate contract: The financing contingency

Date Published: 07/20/2020 [Source]

In the home-buying process, buyers and sellers should negotiate to write contingencies into their contract to mitigate risk. For example, sellers may want to condition their obligation to sell on finding and purchasing another home. Buyers who are financing a portion of the purchase price will want to insert a financing contingency clause. Buyers also commonly make their purchase offers contingent on receiving satisfactory inspection reports describing home condition, radon levels, well and septic system safety and functionality, where applicable, and absence of wood-destroying insects. Contingency clauses excuse a party's obligations to go to settlement if the contingency is not met or waived.

If buyers and sellers understand the financing process and their rights and obligations, they will be in a better position to negotiate a reasonable and enforceable financing contingency clause in their purchase and sale contract.