Real estate contract contingencies give buyers and sellers peace of mind and reassurance when purchasing or selling a property. Without these specific clauses in place, parties could initiate real estate transactions without the ability or intent to complete them, negatively impacting the other side.
State and federal contract laws provide adequate, reasonable representations when engaging in real estate transactions. It is essential to use contingencies wisely: too many or too few can result in unintended market consequences. Always get legal advice if you need personalized information about your real estate contracts.
In this article, an Arkansas real estate contract attorney explains what contingencies are, the different types available, and how to manage them effectively.
What is a Contingency in a Real Estate Contract?
In contracts, contingencies are types of clauses. In real estate law, contingencies establish that specific terms and conditions must be met before a real estate transaction proceeds and closes. Essentially, they say that the buyer or seller must fulfill obligations, representations, and warranties.
You can think of contingencies in real estate contracts as “if, then, else” statements. For example, if a specific event occurs, then it triggers the next event, or else the transaction pauses or stops.
While contingencies can slow real estate transactions down, they are an essential component. More contingencies may result in a more secure, predictable sale or purchase, whereas fewer contingencies could result in parties backing out of the transaction without cause.
Note: The state addresses real property laws under Title 18, Subtitle 2 of the Arkansas Code. This body of law will apply to real estate transactions occurring in the State of Arkansas.
What Are the Different Types of Contingencies Found in Real Estate Contracts?
Types of real estate contingencies that buyers and sellers might encounter include:
- Appraisal. An under- or over-valued property could lead to financial and legal issues in the future. Appraisal contingencies ensure that the appraised value reflects the actual property value. An appraisal contingency will also establish the deadlines by which valuations must occur.
- Financing. This type of contingency relates to how the financing will work between the buyer and seller. It can also specify the termination of the contract on a certain date if the financial contingency goes unfulfilled, allowing the seller to reopen the property to other buyers.
- Sale. If a buyer attempts to purchase a property while in the process of selling another property, a sale contingency allows them to settle the sale of their current property while still maintaining their rights on the new one. The seller generally takes on the most amount of risk in this arrangement.
- Due diligence. This contingency requires the seller to inspect the property within a specific, reasonable period. Otherwise, the buyer can back out of the transaction. An inspection should represent the property accurately and disclose all known property issues that the buyer can review and/or negotiate as part of the deal.
If you do not see a contingency in this list that works for your situation, you may have more specific or advanced legal needs. You can discuss the transaction with an Arkansas real estate contract attorney to determine the best approach for your needs. Otherwise, an incorrect clause could result in future financial and legal consequences.
Tips for Managing Arkansas Real Estate Contract Contingencies
Real estate contract contingencies are straightforward for most buyers and sellers to understand. However, real estate transactions can become complicated. Knowing what to anticipate and handling unexpected issues can ease buyer and seller anxieties.
Here are a few crucial tips to keep in mind when managing real estate contingencies in Arkansas:
Tip 1: Only Use Contingencies When Necessary
Most real estate contracts use contingencies. However, it’s important to understand the difference between “must have” and “nice to have.” Too many contingencies can scare people away, so it’s best to only use the ones that matter and make sense for the given situation.
Tip 2: Either Party Can Ask to Add Contingencies
The art of negotiation is fraught with second-guesses. Everyone wants the best deal possible, and no one wants to be on the losing side. As such, you should anticipate that the other party may wish to restructure your initial offering.
Most parties to a real estate transaction—even on the side asking to negotiate—don’t want to change the original document too much. However, buyers and sellers can approach each other with an open mind to see if a value-creating transaction can take place, even under different terms and conditions.
Tip 3: Use Deadlines to Your Advantage
Deadlines are a huge part of any real estate contract, meaning you should use them strategically. Regardless of your role, you can use deadlines to confirm that the other party is fulfilling their duties well before the closing date. Multiple contingencies will result in numerous deadlines, including pre-event milestones, so you will need to timeline them and follow up as required.
Work with an Arkansas Real Estate Contract Lawyer
When you hire a real estate contract attorney, you get the help of a legal professional who understands how to apply the law to your situation. They also guarantee that their work is free from legal mistakes and will function as intended even after you leave their office.
If you own multiple properties, especially at the commercial or industrial level, contingencies are generally complex, require monitoring, and benefit from routine maintenance. Speak with an Arkansas real estate contract lawyer to determine when legal advice could help with your unique needs.
Call Milligan Law Offices for an Initial Consultation
The legal team at Milligan Law Offices is ready to help you manage your real estate contract contingencies. Schedule an initial consultation today by calling (479) 783-2213 or by messaging us online.