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3 Crucial Contingencies & Red Flags to Look Out for Sellers in Texas Real Estate Market

3 Crucial Contingencies & Red Flags to Look Out for Sellers in Texas Real Estate Market

In the intricate landscape of real estate transactions in Texas, sellers must adeptly navigate significant contractual considerations. Among these pivotal elements, contingencies stand out as clauses that confer the right upon either party—buyer or seller—to terminate the contract under specified conditions. For sellers, comprehending and addressing these contingencies is paramount, as they represent a delicate equilibrium between ensuring a successful sale and managing potential disruptions. In this discussion, we meticulously explore the primary concern at hand: contingencies in real estate contracts.

Top 3 Contingencies and the Red Flags to look for:

  • Finance: The buyer's ability to obtain financing is a major contingency for sellers. If the buyer is unable to get a mortgage, the contract will be canceled, and the seller will have to start the selling process over again. Red flags to look out for:

  1. Vague Financing Terms: If the buyer's financing terms are unclear or ambiguous, it could signal a potential problem. Lack of specificity in loan details, such as interest rates, loan amount, or down payment, may indicate an uncertain financial arrangement.

  2. Extended Approval Timelines: Delays in securing mortgage approval can be concerning. If the buyer's financing contingency includes an unusually long approval period, it may suggest challenges in obtaining a loan or uncertainties in their financial situation.

  3. Multiple Contingencies Dependent on Financing: A buyer with numerous additional contingencies hinging on successful financing could pose a red flag. This complexity may indicate a higher likelihood of complications during the loan approval process, potentially leading to the cancellation of the contract.

  • Home inspection: The home inspection contingency allows the buyer to have the property inspected for any major problems. If the buyer is not satisfied with the results of the inspection, they can cancel the contract. Red flags to look for:

  1. Requests for Extensive Repairs: If the buyer's inspection report reveals a laundry list of significant repairs, it could be a red flag. Excessive demands for repairs may signal potential negotiations or, in extreme cases, could lead to the buyer considering cancelation.

  2. Contractors Specializing in Major Issues: Discovering that the buyer has hired contractors specializing in foundational, structural, or other major issues raises concerns. This may suggest a thorough inspection has uncovered substantial problems that could impact the property's value.

  3. Unreasonable Inspection Timelines: Delays or unusually long timelines in completing the inspection may be a red flag. This could indicate that the buyer is extensively researching potential issues or considering alternative properties, potentially leading to contract cancellation.

🧨Some buyers are really looking for a New-Construction Home at a "previously owned" price tag. So, beware of excessive repair request outside of safety, health and hazard issues!
  • Appraisal: The appraisal contingency ensures that the property is worth the agreed-upon purchase price. If the appraisal comes in lower than the purchase price, the buyer may be able to renegotiate the price or cancel the contract.Being vigilant about these red flags can help sellers navigate the financial aspects of a real estate transaction more effectively. Red flags to look for:

  1. Significantly Low Appraisal Value: If the appraised value comes in substantially lower than the agreed-upon purchase price, it can be a significant red flag. This may lead to renegotiation discussions initiated by the buyer or, in extreme cases, contract cancellation.

  2. Lengthy Appraisal Review Periods: Unusually long timelines for the appraisal review could indicate that the buyer is exploring options or contemplating the implications of a lower appraisal value. Extended periods may signal potential challenges in reaching an agreement on the property's worth.

  3. Escalating Requests for Property Comparisons: Repeated requests for additional property comparisons or an extensive review of the appraisal report may be red flags. This behavior suggests the buyer is carefully scrutinizing the appraisal for potential discrepancies, possibly leading to negotiations or contract reconsideration.

Sellers can minimize their risk from contingencies by:

  • Pricing the property competitively: A well-priced property is more likely to attract buyers who are qualified for financing.

  • Disclosing any known defects: Sellers should disclose any known defects in the property to the buyer before the contract is signed. This will help to avoid any surprises during the inspection process.

  • Negotiating contingency deadlines: Sellers should negotiate contingency deadlines that are as short as possible while still giving the buyer enough time to fulfill the contingency.

Outside of continguencies, be cautious of stated represenations and warranties:

Representations and warranties are statements made by the seller about the condition of the property. For example, a seller might represent that the roof is in good condition or that there are no known defects in the property.

Sellers should be careful about the representations and warranties they make, as they can be held liable for any damages caused by false statements. Sellers can protect themselves from liability by:
  • Only making representations and warranties about things they know to be true.

  • Including disclaimers in the contract that limit their liability for false representations and warranties.

Warnings against Breach of contract:

A breach of contract occurs when one of the parties to the contract fails to fulfill their obligations. For example, a seller might breach the contract if they fail to close the sale on the agreed-upon date.

Sellers can safeguard against breaching the contract by:

  1. Conducting a Thorough Contract Review: A meticulous examination of every clause and provision ensures sellers comprehend their obligations, timelines, and potential contingencies. This proactive approach minimizes the risk of unintentional breaches.

  2. Seeking Legal Counsel: Consulting with a real estate attorney can provide sellers with a comprehensive understanding of their contractual obligations and legal implications. Legal professionals can offer valuable insights, ensuring adherence to all terms and conditions.

  3. Maintaining Open Communication: Establishing clear lines of communication with the buyer promotes transparency throughout the transaction. Sellers should promptly address any concerns or potential issues that may arise, fostering a collaborative and informed environment.

  4. Setting Realistic Expectations: Sellers can prevent unintentional breaches by setting realistic expectations regarding timelines, property conditions, and any potential challenges. Openly communicating these expectations helps align all parties involved in the transaction.

  5. Documenting Agreements in Writing: Any modifications or agreements made during the course of the transaction should be accurately documented in writing. This practice ensures clarity and prevents misunderstandings that could lead to breaches.

  6. Adhering to Contingency Deadlines: Timely compliance with contingency deadlines is crucial. Sellers should meticulously track and fulfill their obligations within the stipulated timeframes, mitigating the risk of breaching the contract due to missed deadlines.

By implementing these proactive measures, sellers can fortify their position, uphold their commitments, and contribute to the smooth progression of the real estate transaction.

Ensure your realtor remains impeccably informed on the latest developments in contracts, addendums, legal amendments, new disclosures, and legislative changes, staying current up to the present moment. In a dynamic real estate landscape, staying ahead of the curve is indispensable.

If any uncertainties or questions arise, don't hesitate to contact me, Amanda Allen directly at 903-603-0648. My commitment to staying abreast of the industry's evolving intricacies ensures you receive the highest standard of service. Your peace of mind is our priority at Amanda Allen Homes/ Coldwell Banker. How can Amanda Allen empower your real estate journey with the most up-to-date knowledge and expertise?

Amanda Allen, Amanda Allen Homes

Amanda Allen

Realtor, Digital Marketer

GRI-SFC-MRP 0697466


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