I wanted to take a moment to talk about some of the more popular contingencies that exist in most residential real estate sale agreements. A contingency clause "is a provision requiring a specific event or action to occur in order for the contract to be considered valid." After a buyer and seller agree and have a signed contract, both have a set of obligations to meet before the transaction can close. These contingencies often allow a buyer time to conduct due diligence and can void the contract without penalty. This is not a comprehensive list, but rather a quick look at the more well-known ones.
The first thing that must occur after the contract is signed and escrow opened: The buyer must deposit any required earnest money in full by the date set. This money represents the buyer's "good faith" to buy the property. The purchase and sale agreement outlines the rules of how and when the parties (buyer and seller and their agents) must perform their duties. So once the buyers make their deposit with escrow, they must move on to the next contingency in the contract.
The first major contingency often discussed is the inspection period. In the state of Oregon, the standard time frame for an inspection period is 10 days; however, a buyer and seller can agree to any length. The reality is that in today's competitive real estate market the shorter you can make the inspection period, the quicker that contingency can be removed. In 2022 some changes were made to the residential real estate sales agreement that allow a buyer a few options when "waiving the inspection." This is very important, and you and your real estate agent need to know the very specific differences.
The first option is called "buyer's waiver of inspection contingency" and allows the buyer to have the home inspected by a professional, but it is just for informational purposes and having checked that box in the contract, if the buyer wishes to terminate based on the inspection findings, they will likely lose their earnest money.
The other option is "buyer's waiver of inspections and inspection contingency." This option means you cannot inspect the property and have removed that contingency, meaning you cannot terminate the contract for that reason. I always recommend a buyer have a property fully inspected by a professional, but there are situations where it could be warranted.
The next big contingency that I have been hearing a lot about is the appraisal contingency, which exists only when a property is being financed and the lender wants to ensure they're making a good business decision. When financing, the contingency states that the property must appraise at or above the agreed upon sale price. A buyer can "waive" the appraisal contingency, but that doesn't mean the home will not be appraised by the lender. If the buyer waives the appraisal contingency and the property appraises for less than the agreed-upon price, the buyer must "bridge the gap" with cash. If a home with a purchase price of $600,000 appraises for $575,000, the buyer would have to bring $25,000. As always, consult with your agent about the specific contingencies in your contract.