Job-Loss Fears Trigger Use of Homebuying Escape Clauses
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Here's your money briefing for Monday, March 27th. I'm J.R. Whelan for The Wall Street Journal. A lot of planning goes into buying a home, but unexpected events could force someone to have to walk away from a potential deal and take on significant penalties. A contingency clause in the contract can be the saving grace.
Basically, they give buyers and sellers a way to back out a real estate contract if certain conditions aren't met. And the sale of the home is contingent on one of these conditions.
Coming up, we'll talk to Wall Street Journal personal finance reporter Veronica Dagger after the break.
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A home is one of the most expensive things you'll purchase in your life. But what if after you've selected a house and started the paperwork process, you realize there's a chance you might not be able to hold up your end of the deal? Wall Street Journal personal finance reporter Veronica Dagger wrote about contingency clauses often written into home buying contracts. Veronica, thanks for being with us.
What is a contingency clause and why is it important in homebuying?
Thanks for having me, JR.
So Veronica, who tends to most often write these contingency clauses into home buying contracts?
Well, they are common with both sellers and buyers because they can protect both sides of the equation there. These days, the buyers are writing them in more, but also some people who are in the tech field, interestingly enough, are writing these contingencies in to clauses, both buyers and sellers who work in tech. For example, I spoke to a seller who worked in the technology area. He lost his job. He was on a special type of visa, which allows him to stay in the country. Long story short, he didn't have a job and he wanted to sell his house. But if he was going to be able to get a new job, he didn't want to sell his house. So he had a contingency that said, look, If I get another job within 30 days, the sale of my house is off.
But if I can't find another job in 30 days, I'll still go ahead and sell my house to you. Interestingly enough, I'm seeing buyers ask for this too. People in tech and people in banking, because we've seen so much uncertainty in banking these days, people who work in those industries are saying, look, if I lose my job before this contract closes, I will be able to get my deposit money back on the house. I'm not going to lose that deposit money, which in some cases could be up to six figures, so depending on how expensive the house is. And so it's an important hedge for people to be able to back out of a contract, get that deposit money back, and minimize hard feelings that might happen between a buyer and seller if things go south.
What usually goes into these clauses? What do they aim to do?
Well, basically, they give buyers and sellers, one or both of the parties, a way to back out a real estate contract if certain conditions aren't met. And basically, the sale of the home is contingent on one of these conditions. Some of these conditions could be an appraisal or they could be a home inspection or they could be a funding contingency and can talk a little bit about those.
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