Individuals who are buying real property in Pennsylvania often commit years of future income toward their purchase. Their financial commitment to the property often begins when they first submit an offer, as they need to have earnest money deposited to underscore their seriousness when making an offer.
Earnest money can range from 1% of the purchase price to the full amount of someone’s down payment in some cases. Sellers can sometimes keep the earnest money if a buyer cancels the closing after the seller accepts their offer. Contingencies are contractual protections for real estate buyers that allow them to keep their earnest money if the closing doesn’t occur as planned.
How contingencies work
Contingencies are essentially clauses in a real estate contract allowing for a penalty-free cancellation. If certain circumstances arise during the closing process, the buyer can cancel the transaction while retaining their earnest money.
Some of the most common contingencies focus on the condition of the property and the financing needed for the transaction. Inspection contingencies allow for buyers to cancel if there are undisclosed issues with the property. Appraisal contingencies allow people to cancel if the appraisal comes in too low. Financing contingencies protect people from losses if they cannot obtain a mortgage due to one of many possible complications.
Provided that a buyer includes contingencies in their offer and submits notice to the seller appropriately when canceling the closing, they can walk away from the transaction without losing the earnest money that they will likely need for the next property they hope to buy. Understanding what details to include in a real estate offer can be key to the protection of aspiring buyers in Pennsylvania.