91 Percent of Closed Sales in August 2017 Had Contract Settlement Contingencies

Contract contingencies give the buyer and seller the right to back out of the contract if these conditions (contingencies) are not met. According to a monthly survey of REALTORS®, 91 percent of closed sales in August 2017 had contract settlement contingencies, up from 60 percent in December 2012, according to the August 2017 REALTORS® Confidence Index Survey.

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The common contract settlement contingencies are related to passing home inspections (19 percent), the buyer obtaining financing (19 percent), and appraisal contingencies (15 percent).

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These contingencies are reflective of the risks buyers face when purchasing a home and are meant to protect buyers against these uncontrollable, but anticipated, risks. Financial contingencies indicate that buyers continue to face a potential problem obtaining credit and obtaining credit in a timely manner. Appraisal contingencies are reflective of the ongoing home price appreciation in many markets. Appraisal contingencies protect the buyer by ensuring that the property is appraised for a specified minimum amount. If the appraised value is higher, the buyer will need to obtain a bigger loan or put down a larger downpayment so if he cannot do so, then the appraisal contract contingency kicks in and the buyer does not need to proceed with the purchase.

What this means to REALTORS®: REALTORS® need to understand the risks buyers face and to protect buyers from these anticipated risks.

Comments
  1. Amanda Addington

    I disagree with the information provided. In both Maryland and Virginia real estate contracts, the appraisal contingency protects the buyer (and more specifically the buyers’ lender where financing is involved) from purchasing the home for more than the appraised value. If the home appraises higher than the contract price, the contingency is fulfilled and the parties move forward. Often the seller never learns of the appraised value in this scenario and the buyer is not required to meet a higher sales price because of the higher appraised value. If the home appraises lower than the sale price the buyer typically has the option to ask the seller to lower the sale price to match the appraised value, pay the difference or void the contract. This is truly the scenario where the appraisal contingency offers protections.

  2. Iris scheuerman

    You made a mistake regarding the appraisal contingencies. If the appraisal comes LOWER than the accepted offer, then the buyer will have to come up with the difference!

  3. Linda Todd

    Why don’t the numbers match? The chart only shows reasons totally 64% while the article says that 91% of closed sales had a contingency. What is missing in the chart?