Contingencies are basically the hinges that hold a sale contract together. Contingencies are requirements made by the seller or the buyer, and they must be met for the completion of a home sale. If the terms of a contingency are not met, the contract must be renegotiated or nullified. Contingencies are helpful because they are a form of security for both parties. Buyers can make sure the house has no underlying or outstanding issues, and the seller can rest assured that the desired sale terms will be fulfilled. If you are thinking of selling or buying real estate, here is a guide to some of the most important contingencies to include in your contract:

Home insurance contingency. Mortgage lenders usually require a potential borrower to provide proof of home insurance. As such, many home buyers opt to include an insurance contingency in the contract. This contingency requires the seller to prove that the house is adequately insured. Appropriate insurance coverage is especially important for buyers because it covers high expenses. Otherwise, if the house has problems, the new home owner would be stuck with the cost of high insurance premiums.

Loan contingency. The seller, of course, wants to make sure he or she is paid. Finance and loan contingencies usually set a deadline for when the buyer must secure a loan. They also list conditions for the loans, such as a provisional interest rate and loan repayment period. These terms allow buyers a degree of control over the means of payment and keeps buyers from being compelled to complete a sale with highly unfavorable loan terms. For example, the contingency might stipulate a loan with 5% interest over a 30-year period. If a home buyer can only secure a loan with a 30% interest rate, then he or she is not required to accept the loan and go through with the sale. If a buyer is unable to secure a loan that fits the agreed upon terms, the contract can be nullified and the deposit should be returned.

Home inspection contingency. Most real estate contracts have a home inspection contingency, which gives the buyer the right to conduct a home inspection within a certain time frame. Depending on the state in which the sale is conducted, this time frame is usually around two weeks, and during that time, the buyer can perform a necessary home inspection. The home inspection is usually an important bargaining tool for finalizing the contract, as it is essentially a report on the quality of the house. If there are many repairs that need to be made, the buyer can either request that these problems be fixed, or the buyer can renegotiate the price.

Title contingency. A title report provides a history of home ownership, and a title contingency stipulates that the buyer can pull out of the contract if there is any proven doubt on the seller’s legitimacy. If it turns out the person trying to sell the house does not really have a right to complete this transaction, then the buyer is not required to fulfill the contract. After initially signing the contract, buyers should receive a title report, which shows legal disputes surrounding the property. For example, there may be a lien on the property — a legal claim that prevents it from being sold. A title contingency can also save a buyer from potential scams, such as a renter trying to sell the property as his own.