When it comes to buying and selling goods or services, a purchase agreement is a formal contract that outlines the terms and conditions of the transaction. Most purchase agreements are typically contingent upon certain factors that must be met before the agreement can be finalized. These contingencies are intended to protect both the buyer and the seller from unforeseen events that could interfere with the transaction. In this article, we will discuss the most common contingencies found in purchase agreements.
1. Financing Contingency
One of the most common contingencies in a purchase agreement is a financing contingency. This contingency provides a buyer with an opportunity to secure financing for the purchase before finalizing the transaction. If a buyer is unable to obtain financing for the amount agreed upon in the contract, the contingency allows them to back out of the sale without penalty. This is a crucial contingency, especially for larger purchases such as houses or cars.
2. Inspection Contingency
Another common contingency is the inspection contingency. This contingency allows the buyer to have a professional inspection done on the item being purchased to ensure that it is in good condition and working order. If the inspection reveals any issues or concerns, the buyer can then negotiate repairs, compensation, or cancel the transaction altogether.
3. Appraisal Contingency
An appraisal contingency is also a common contingency in purchase agreements. This contingency is typically seen in real estate transactions, where a professional appraiser assesses the fair market value of the property being sold. If the appraisal reveals that the property is worth less than the agreed purchase price, the buyer can negotiate a lower purchase price with the seller or back out of the sale.
4. Title Contingency
A title contingency is often included in purchase agreements for real estate transactions. This contingency ensures that the seller has legal ownership of the property and that there are no liens or other claims against it. If title issues arise during the transaction, the title contingency allows the buyer to either negotiate a resolution with the seller or back out of the sale.
5. Contingency on the Sale of Another Property
In some cases, a buyer may need to sell their existing property before purchasing a new one. In such cases, a contingency on the sale of another property may be included in the purchase agreement. This contingency allows the buyer to back out of the sale if they are unable to sell their existing property in a specific time frame.
In conclusion, purchase agreements are essential documents that protect both buyers and sellers during transactions. By including contingencies in the agreement, both parties can avoid risks and unforeseen events that could disrupt the transaction. The above-listed contingencies are the most common found in purchase agreements. If you are planning to make a purchase or sell goods or services, it is recommended to seek the help of a legal professional to ensure that your purchase agreement is complete and comprehensive.