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What Are Commercial Real Estate Contingencies?

Posted by ross1031 on April 24, 2017
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A term that you will commonly hear within the real estate industry is “contingency”.

Miriam-Webster defines “Contingency” as: “An event that may but is not certain to occur.”

If you found that definition a bit confusing, don’t worry, you aren’t alone. Let us explain.

Think of buying a property like a race. The start of the race is when your offer is accepted. The finish line is when money is exchanged, the deed is swapped and the deal is completely finished.

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Whenever you buy a property, you almost always place a deposit with a third party escrow or title company. This deposit is refundable so long as you have contingencies in place.

When you are buying a property, don’t you want to do inspections and make sure that everything is ok with it? If you are getting a loan, don’t you want to make sure that you and the property qualify? These conditions are essentially hurdles in the buying process are known within the industry as contingencies.

You usually have around 2 weeks to do all of the inspections on the property that you desire. This is usually the first hurdle and is known as your “inspection contingencies”.

You will most likely have another 3 weeks to have your appraisal done and make sure you fully qualify for the loan. This is usually (but not always) the last hurdle and is known as your Appraisal and/or Loan contingency.

So long as you haven’t crossed that final contingency, your deposit is refundable, however once you cross that final hurdle and remove the final contingency, your deposit’s refund status is not refundable and completely up to the seller to return to you. They are under no legal obligation to return it to you.

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Side note: If you’ve removed the final contingency, and the deal still doesn’t go through for whatever reason, the refund of your deposit is completely up to the seller. It doesn’t matter if you got sick and lost your job, changed your mind about the building, or the bank decided to change their mind about extending you the loan. No remaining contingency means no guaranteed refund of your initial deposit.

Contingencies are set up to essentially prevent issues at the close or sale of a property. They help eliminate disputes in the last minutes relating to inspections, financing, or repair work. As with all legally binding documents, it’s always best to have your lawyer to review all aspects of the contingencies to ensure that you as the buyer or seller are properly protected.

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