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Real Estate Investing Contingencies
By eric | November 19, 2007
Your attorney will be able to advise you about contingencies. Contingencies are provisions within a contract that give you recourse to cancel the deal in the event of unforeseen circumstances. A few examples of typical contingency statements include loan contingencies and due diligence contingencies. These are critical and I recommend they be in every purchase and sale agreement.
A loan contingency states that the sale is contingent on you qualifying for the loan. This gives you an out should the lender refuse to finance the deal. I won’t do a contract that doesn’t have a loan contingency. We were property-managing a project where a buyer put a deposit of $200,000 in earnest money on a property that didn’t have a loan contingency. He didn’t get the loan. The sad ending is that he lost his $200,000. True story.
Due diligence contingencies are equally important. This language in a purchase and sale agreement states that you as the buyer are entitled to any and all documents related to the property. It also states that you as the buyer may ask any questions about the property and that you are due answers from the seller to the best of his or her knowledge in a timely manner. The results of the due diligence process are ultimately what decides your purchase or decline of the property. They also help you formulate your property plan and operating budget, two steps critical in maximizing your investment. This clause ensures that you get all the information you need.
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