The Delicate Balance Of Contract Contingencies
Inspection Contingency: There are several inspections a purchaser should have before purchasing a home in Florida. They include a WDO inspection (a/k/a termite inspection); mold inspection, general home inspection, and wind mitigation inspection. Inspection clauses come in a variety of forms. Some require a seller to make repairs up to certain agreed-upon dollar limits while others allow a buyer to cancel the contract if he or she is not satisfied with the outcomes thereof in the buyer’s sole discretion (sometimes referred to as a “free-look”). Some clauses require that the buyer employ licensed professionals to conduct the inspections but clauses are sometimes drafted to allow the buyer to perform his or her own inspection. Most inspections can be completed within 2 weeks.
Document Review Contingency: Florida law provides buyers of residential condominiums a right to cancel the contract after review of the condominium documents, rules and regulations, and financials. However, there is no built-in contingency for the review of the same documents pertaining to the documents of subdivisions with homeowner’s associations. Therefore, if a buyer wishes to review the documents a provision must be added.
Sale of Existing Home: Some buyers find their dream home before they have sold their existing home. In this case, a contingency is drafted allowing the buyer to cancel the contract and receive a return of the escrow deposit if they are unable to complete the sale of their existing home within a reasonable time period. This type of contingency is more prevalent in a buyers’ market but nearly non-existent in a sellers’ market.
Insurance Contingency: At times the cost of homeowner’s insurance and/or flood insurance can be shocking to those purchasing real property in Florida for the first time. Older homes, coastal homes and homes in low lying areas (which are not necessarily close to the coast) are of most concern. To eliminate this risk a clause can be drafted allowing the buyer to cancel the contract if he or she is unable to obtain insurance policies at a cost below an agreed upon dollar amount.
Short Sale Approval Contingency: If a seller is selling his or her home for an amount insufficient to pay-off the mortgage(s) encumbering the home then the seller’s obligation to close is made contingent- upon the seller obtaining approval from seller’s lender(s). The approval process can take several months. There are several pre-printed Short Sale Addenda circulating. I highly recommend that a buyer or seller consult an attorney before they sign one.
Of course there are many more contingencies that could be drafted to meet the specific needs of a buyer or seller and these should be discussed with an attorney as early as is possible in the home hunting process. Also, keep in mind that a contract with too many contingencies is less apt to be accepted by the party on the other side. Your attorney will assist in selecting the appropriate clauses under the circumstances.
Areas of Practice: Real Estate Closings, Title Insurance, Residential & Commercial Real Estate Closings, Contract Preparation, Deeds & Mortgages, Wills & Trusts