How to Draft a Real Estate Contingency

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Dear Monty: We are selling our home to a neighbor down the street. We didn’t know them, but they knocked on our door a month ago and asked if we would be interested in selling. We got several opinions from agents and decided we could do this on our own. We have now agreed on a price, and I agreed to write up our agreement. They want a home inspection, which is a good idea. They will be paying for it. Do you have any tips on what else to include besides the fact that they will pay for it?

Monty’s Answer: Contingencies are frequent in real estate transactions. Due diligence costs are often expensive, and each party wants the basic terms in place before ordering work. Every property is unique and both parties have different life experiences, so they may have different expectations of the desired results. A contract that contains a contingency is not enforceable until the contingency is satisfied. The words “not enforceable” are why being as specific as possible when drafting a contingency is essential.

A contingency should answer the questions of who, where, what, when and how. Additionally, which party will pay, and what happens if they don’t? If there is a disagreement in my state, a ruling by a court would usually go against the drafter. Anecdotally, not all states would take that position. Consider having an attorney review an offer to purchase before presenting it to the other party.

Drafting The Contingency

Your buyer has stated they want an inspection they will pay for, and you have agreed that it is a good idea. Here is an example that you can adapt to your particular circumstances.

“This offer is contingent upon the buyer obtaining a home inspection by a professional home inspector at the buyer’s cost. The buyer will select the inspector. The buyer will deliver a written report indicating no evidence of defects to the seller within 15 days of accepting this offer.

“This contingency shall be satisfied unless the buyer, within 20 days after acceptance of this offer, delivers written notice to the seller listing the evidence of defects to which the buyer objects. This notice shall include the measures recommended in the report that the buyer expects the seller to Cure.

“The seller must satisfy this contingency by delivering a notice within five days of the buyer’s delivery of notice to the seller that the seller will perform the Cure. When the Cure is complete, the seller shall deliver to the buyer a written report with paid receipts detailing the completed work no later than three days before the closing.

“If the seller does not timely deliver notice of the election to perform the Cure, the buyer shall have five days to terminate this offer by delivering written notice of termination to the seller.

“If the buyer does not deliver a notice of termination within five days or if the buyer does not obtain a report within 15 days of acceptance, then this contingency shall be deemed satisfied.”

Does This Contingency Work?

What needs to be done? Who is going to do it? Who will pay? When will it be done? What happens if it is not done?