What is a Contingency for a Sales Contract?

What is a Contingency or Conditions to an Offer to Purchase?

 

Good question; it is not really in one day-to-day vocabulary unless you are a Real Estate Advisor or their spouse and children know it. It is a vital part of any Offer to Purchase or Sales contract to buy property in the Cayman Islands. Your Advisor will keep these dates in mind throughout the sales process.

When you are in contract or escrow, as some call it, it means that you are a party to a sales contract. Either as a buyer or as the seller. There are rights and penalties, so you need to know the lingo.

A contingency and a condition to the contract are the same nouns. This provision tells all parties to the contract under what circumstances a buyer can back out of the contract and get the full deposit back. For example, you are the buyer and excited to buy a condo on Seven Mile Beach. You love the location, the building and the view, and you ask your Advisors to write up an offer to present to the seller. However, you do not know anything about the HOA or Strata, you do not know if the local bank will give you a mortgage, and you do not know if all the appliances and air conditioning are working. You may feel a bit nervous about putting in an offer to buy it. In that case, your Advisor will put in a contingency or conditions that if you are satisfied with the answers, you learn before the deadline in that condition. Once all the contingencies or conditions are met, you will sign a waiver stating that you are satisfied with the contract’s requirements and your deposit is non-refundable. However, if you discover something you are not happy about in the AGM and Strata financials, you can cancel the deal and get your deposit funds back or renegotiate with the seller.

However, if you have waived all your conditions and then decide NOT to buy the property, the seller can keep your entire deposit. The typical deposit in the Cayman Islands is between 5 to 10% of the purchase price. That deposit is held in the Brokers Trust or Escrow account, and it is not to be touched unless the contract allows for it.

Some standard conditions to the offer to purchase are:

1) Inspections: this allows the buyer to do investigations such as home, roof, window, appliances, air conditioners, pest and pool inspections. Two companies who are good; give a detailed report and the suggested cost of repairs. They have a quick turnaround for the report. Click here for our recommendations. Prices are between $950 and $1500 for a standard condo or home. A larger square foot home can be much more; call for a quote.

2) Financing allows the purchaser time to obtain bank financing approval; this includes the buyers getting life insurance and a valuation to ensure they are not overpaying for the property. The mortgage lenders are banks in Cayman, and they are slow so expect 4-10 weeks to get a mortgage approved. If you are super organized and find a qualified, experienced lender, then you can do it in less than four weeks. Call us, and we will put in in touch with a lender at RBC or Butterfield Bank.

3) Strata Docs: The buyer needs to read and understand the bylaws they agree to obey when buying the condo. The strata documents will tell the buyer what they can and cannot do. Will the strata allow pets owner only or tenants, or not allowed at all? Can an owner rent short-term with Airbnb and VRBO? Are there healthy savings accounts for a hurricane or significant damage to the condo buildings? Is there an owner who owes thousands of dollars in strata fees? When you read the Strata AGM minutes and financials, you will find this out. This condition can be quick as the listing Agent should have all this information handy.

4) Attorneys Inquires:  This is another essential condition that your lawyer would like to see in the contract. This is a short condition as well.

Removing Contingencies or satisfying the Conditions.

In the Cayman Islands, you must remove or satisfy the condition by form or a signed waiver from the buyer stating they are happy with all their inspections and conditions and are happy to proceed. They acknowledge they get that their deposit is now non-refundable. In other words, the contingencies are not automatically removed. They must sign a waiver even if the time has passed. If they decide not to buy the home, they lose their deposit to the sellers, and the buyers have no

One problem we see a lot is that the mortgage lenders do not respect the dates in the contract so if the dates for waiving those conditions are fast approaching and you still do not have approval, you will need to ask for an extension to conditions. If the seller does not give an extension, the contract is dead, and the sellers can return the deposit and accept the backup offer if there is one. The Listing Agent and Buyer’s Agent need to keep track of these dates; otherwise, a buyer could find himself without a valid contract.

Our Offer to Purchase is eight pages of fine print and a lot of legal jargon. Your realtor should explain every clause, and if they cannot, then ask to speak with their broker. These are critical legal documents, and you need to understand them.

In conclusion, contingency or conditions to the contract are necessary and can protect you while you investigate the property. This gives peace of mind to the buyer and a happy seller.