Contingencies for homebuyers: A checklist

Contingencies are clauses that let buyers cancel the contract with the seller if a key part of the deal falls through.

It could be many things — maybe a roof that looked decent from the sidewalk turns out to leak or an appraisal that shows the value of the home is below its asking price.

There are several contingencies frequently included in a purchase agreement. Ask your agent to review them so that you understand what triggers them and the consequences they have.

Here are some of the common forms of buyer contingencies:

• Appraisal contingency: The home's value is appraised at less than the price
• Lien contingency: When the buyer or seller discovers a lien on the property, such as a tax obligation or legal claim, that must be satisfied before the house can be sold
• Inspection contingency: When a home inspection turns up the need for repairs or defects with the home
• Finance contingency: When the buyer is unable to get a mortgage
• Sale of current home contingency: When the buyer is unable to sell their current home to help finance the new purchase

A failed contingency doesn't have to end a deal. Buyers and sellers can negotiate terms of an agreement to compensate — for example, to cover the cost of repairing defects turned up in a home inspection. Always consult your agent to discuss what you are willing to negotiate before starting. Several market circumstances can give buyers more negotiating power in case of a failed contingency. If a home has been on the market for a long time — more than 30 days — a seller may be more willing to negotiate. If there are more sellers than buyers — known as a buyer's market — a seller may not want to risk relisting the home. Buyers can ask sellers for several forms of compensation. They could seek a lower sales price, for example. Buyers could ask for a credit at closing — perhaps a small percentage of the sales price — in the form of cash or payment of closing costs. Sellers typically do not pay the down payment for a home.

Here's some options buyers can choose for responding to different kinds of contingencies:

• Ask seller for more time to apply to another mortgage lender
• Ask seller to reduce the price of the house so it is more affordable
• Ask if seller is willing to finance the sale themselves
• Ask if seller is willing to enter a rent-to-own contract

• Negotiate a new contract to sell the home at the appraised value
• Pay the difference between the sales price and appraised value
• Review the appraisal for inaccuracies
• Get another appraisal on the property
• Use another lender, who often will use a different appraiser

Pro tip: Make sure an appraiser is licensed and has experience in the neighborhood/community where the home is located.

• Verify the lien
• Determine if the lien holder is willing to reduce or forgive the amount
• Pay off the lien or negotiate a lower price for the home
• Ask if the seller can pay the lien before closing
• Negotiate a new price with the seller to cover the cost of the liens

Pro tip: Get an inspection early in the closing process to find issues and give yourself time to negotiate a solution.

• Ask if the seller is willing to make the repairs
• Ask if the seller is willing to reduce the price of the house to cover repairs
• Choose to ignore any cosmetic repairs to the home that are not critical to occupancy
• Consider whether to buy the home and making the repairs yourself

• Ask seller to give you more time to find a buyer

More on this topic:

• What does contingent mean?
• Contingencies can protect buyers from nasty surprises