navigating real estate contingencies why brokers and agents must exercise caution
  • December 8, 2023
  • Reading time about 6 minutes

A successful real estate business handles the common contingency clauses like a pro!

As an agent or broker, you must have felt the heat of one or another contingency clause at some point. After all the hassle of generating a lead, nurturing it, and converting it into sales, it can be painful not to be able to close the deal because of these deal-breakers.

This blog will discuss what contingency clauses are in the real estate space and how brokers and agents can navigate these roadblocks.

What is a Real Estate Contingency?

A real estate contingency is a condition outlined in a purchase agreement that must be met for the contract to become legally binding. Buyers and sellers must mutually agree to these terms and conditions for them to come into effect.

Contingency clauses offer flexibility to both parties to cancel the contract without facing any penalties if certain conditions aren’t met. Let’s say there was a clause in the contract that the seller must secure a new home before completing the sale. This is a contingency clause. If this condition isn’t met within the mentioned timeframe, the deal will be canceled without any repercussions.

Top Contingencies to Look Out for as a Real Estate Broker and Agent

As a real estate agent or broker, your reputation and commission are both at stake if a real estate contingency appears before the deal closes. Let’s discuss the common contingencies that every broker and agent should look out for.

Mortgage Contingency

This clause binds the buyer to arrange for the required mortgage amount within a timeframe and allows the seller to break the deal if the buyer does not fulfill the condition. This sounds like a fair-square clause. However, mortgage contingency is never good news for a broker or agent.

After investing so much time and effort into turning a lead into a business, losing a closure due to mortgage contingency can be disappointing. When a real estate deal is off, the property is again listed on the market. It hampers your brand’s reputation, and people might want to consider other options. Even when extended transaction time is provided to the buyer, there’s always an opportunity cost to

bear. As an agent or broker, your efficiency gets hampered as you have not yet closed the old deals and cannot focus on the new ones.

Title Contingency

A buyer can always do a title search and raise objections if there is any conflict over the title of the property. The title contingency clause provides buyers protection against any dispute around the title. They can walk out of agreement if the title search ends in any such revelation.

For a broker or agent, such contingency can result in an extended transaction period, causing unnecessary inconvenience. Besides, their risk assessment skills will be under scrutiny by potential clients as they affect their reputation and the business.

Home Inspection Contingency

The home inspection contingency isn’t just a random inspection of the property; it’s a proper check where buyers uncover the hidden quirks and potential pitfalls. It’s their safety net against surprises like weak structures or leaks. While it grants them the power to gracefully exit the deal, for real estate brokers and agents, it’s not good news.

It can stretch the deal, causing a ripple effect of inconvenience. It complicates the negotiations and pricing of the property. Moreover, there can be repeated inspections, which consume more time.

Sale of a Prior Home Contingency

As the name suggests, the clause permits the buyers to sell their existing accommodation before closing a new house deal. A decided timeframe is given to the buyers to complete this. If they fail to sell their existing house, they can exit the deal without facing any penalties. No matter how convenient it looks for a buyer, it certainly isn’t a favorable scenario for an agent or broker.

Market conditions play a vital role in how smoothly a real estate deal will go. Such a slowdown isn’t an instance. There might be economic lack that every buyer must feel. Having no control over these dynamics, you might feel an overall setback.

Homeowner Insurance Contingency

This clause mandates the buyer to secure home insurance before the deal is closed. If this condition isn’t met, either party can withdraw from the contract. Though this is crucial for property security, this clause introduces challenges for real estate brokers and agents.

With the sword of deal termination hanging on the head, a broker or agent must exhibit crucial communication skills to secure relationships with both parties. Besides, their market reputation is at stake, and they don’t want to be seen as a business that cannot close deals.

Real Estate Brokers and Agents—A Heads Up!

As a business, you are always praying for fewer contingencies in real estate. These contingencies are unavoidable and can hamper your business in so many ways. It’s always good to be cautious and ready.

Efficiency Lags

Mortgage contingencies can hamper efficiency. It prolongs timelines and hinders the smooth transition between closing old deals and moving to new ones.

Reputation at Stake

Title contingencies put a broker’s risk assessment skills in question. It can potentially impact the broker’s image in the market.

Communication Complexity Contingencies add to the communication complexity

Let’s say the homeowner insurance clause requires brokers and agents to delicately balance communication, knowing the threat of deal termination might affect the client relationship.

What’s the solution?

Investing in real estate auction software can reduce the risks considerably.

A trusted technological solution like Bidhom enhances your operational efficiency by:

  • Streamlining transaction management
  • Timely processing of mortgage contingencies
  • Reducing disruption risk
  • Centralizing communication

Besides that, real estate auction software equips you with advanced analytics, automating risk assessment during contingencies. Highly functional, integrated features simplify the process and lead to smoother negotiations. Here’s the best part: real-time market trend analysis readies brokers and agents to navigate uncertainties about different real estate contingencies.

Bidhom is a ready-to-go real estate auction software, rolling out top-notch solutions for auctioneers, auction houses, and realtors.