How to Write Contingencies for Contracts and Negotiations

If you are buying a home, or are thinking about it, at some point, you will put together a written offer to provide to a seller.

Some deals are negotiated back and forth for days or weeks, and others? One or two quick phone calls between agents, and it's all over.

But during that process, as the buyer, you'll likely want a host of considerations added...for example: A home that, upon an inspection is found to have termites, might make you walk away, but getting the problem under control would allow you to feel comfortable moving forward. Or how about a home that you can't get insurance for-that's actually affordable? Or what if you have to sell your house first, before you can buy your next one?

Contingencies are the exceptions to your proposal...things that, if they did or didn't happen, would give you an 'out,' of the contract, or at least the right to further negotiate.

All good agents know that writing a solid contingency is an art. Good ones sing with their completeness, clear purpose and unambiguous ramifications. Bad ones are one-liners that don't tell anyone anything, and can get both a buyer and seller into hot water. Writing contingencies doesn't count as practicing law without a license in most states, but it does walk a fine line, since most contingencies are changes to an existing legal contract.

So what makes a good, solid contingency? Seven things. And if you remember your journalism class back in high school, these will sound familiar.

1) WHO: The contingency should clearly state who does what...is it the buyer? The seller? An inspector? The City or County? An Appraiser? It isn't assumed, so spell it out. Use names where possible, and make it very clear who the 'who' is. If you just say 'a licensed contractor,' that is pretty open. Be specific if you need or want to be.

2) WHAT: What do you want? A total outline of what needs to be done should be spelled out in
detail. Complete detail. There is no amount of specificity that is too much. Whatever you leave out will be open to interpretation. And no two people interpret anything the same way.

3) WHERE: We assume that the contingency will take place on the property itself, but maybe not. If something needs to be done off-site, the complete address should be included...if something needs to be done on-site, like the removal of a tree, you can't simply say, 'the tree in the backyard,' if there is more than one tree, thinking that it's obvious. Be specific-use weights, measurements, distances, take pictures, etc. If you use 'left side' or 'right side,' make sure that you give the reader direction...my left? Your left? Facing the driveway, or facing some other direction?

4) WHEN: All dates must be clearly identified. No numbers, but actually written out. A date like 05/10/2010 is May 10th to some, perhaps November 5th to others, especially buyers from other countries or if the contract doesn't spell out date qualifiers in the boilerplate. Write it out and include a time-deadline too, noting the time (use either am/pm or a 24hr clock so that it's clear) and the time ZONE...a buyer in California and a seller in Maryland need to know WHICH 5:00 everyone is talking about.

5) WHY: Asking for something for the heck of it won't go over well. If you are asking for a radon mitigation system or a new roof, the seller will want to know why, and proof of the test results or an inspection should be included in the request. Have a good, clear, backed-up reasoning for your requests. Sellers don't tend to continue to negotiate in good faith when a buyer asks for useless, trivial things without purpose. Concentrate your requests on the repair broken items, add value, or are health and safety issues. Save some of your negotiation capital for closing day in case something unforeseen comes up. While you can ask for anything, some requests will just be seen as adversarial.

6) HOW: One hundred people will approach a task in 100 different ways. If you want something to be handled in a particular way, spell it out, specifically, whatever it is. Include tools to be used, techniques, methodology, identify industry standards, professionals, etc.

7) IF NOT, THEN WHAT: You need a clause that states what the ramifications are if the contingency doesn't happen. Otherwise, without consequences, why bother? If you don't pay your phone bill, and your phone never gets cut off, why pay it? The same thing applies here.

Let's look at a bad contingency:

I see these a lot...something like: "Seller to paint the garage before closing."

Well, if I was the seller, I might paint only the front of the garage, with leftover pink spray paint from my daughter's school project, the day before closing, even if the paint was still wet on move-in day. After all, that would meet the parameters of the request, right? The buyer might not be happy, but obligations would be fulfilled.

A Good Contingency Looks Like This:

Due to the excessive peeling of paint on both garage doors as identified on page 2 of the Jim's Inspection Service inspection for 124 Main Street, performed on September 12, the seller of record, at seller's exclusive time and expense, and at least 2 days prior to closing, shall paint the 2-car garage doors, both the left and right sides, outside facing-side only. Doors shall be completely sanded (using hand or mechanical means) and primed to remove current peeling paint; one coat of white primer to be used (insert brand here), followed by 2 coats of the color Caribbean Sand, Sherwin Williams brand, color number Y995TY; paint should be applied with brushes, rollers and/or sprayed on, and in accordance with paint directions, with any over-spray removed from windows and/or surrounding vegetation. Seller shall allow buyer to perform a follow-up visual inspection at least 48 hours prior to scheduled closing date and time. If the project is not completed to buyer's satisfaction prior to closing, buyer shall exercise the option to have all earnest monies refunded completely, and terminate the contract without seller recourse.

Good contingencies are super-wordy and nearly insane with a level of exactness. Removing the wiggle-room is what well-written contingencies do for the buyer and seller. Everyone is happier when the buyer gets what they want, and the seller knows exactly what they're supposed to do. If a contingency is written at all, chances are, both parties are fairly committed and want to go to a smooth closing. Smart, tight contingencies can help make that happen.