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Five Contingencies of the FARBAR AS IS Contract You Should KnowFive Contingencies of the FARBAR AS IS Contract You Should Know

Five Contingencies of the FAR/BAR “AS IS” Contract You Should Know

06 Sep 2017

If you buy or sell real estate in the State of Florida, chances are you have come across the FAR/BAR “AS IS” Contract, which was created jointly by the Florida Association of Realtors (now Florida Realtors) and the Florida Bar. The FAR/BAR “AS IS” Contract is widely utilized as a standard form in real estate transactions, not least because of its comprehensive contingency clauses, which lay out the conditions and obligations that must be met by the parties for the contract to be binding.

A Broad Overview of FAR/BAR “AS IS” Contract Contingencies

A contingency clause gives the parties a right to back out of the contract based on certain circumstances or situations that must be negotiated between them. If anyone of these contingencies is not met, the contract may be canceled and at least one of the parties can back out without legal repercussions. If all contingencies are met, however, the contract is legally binding and any party trying to back out may be in breach of the contract, leading to legal and financial consequences (up to and including litigation).

The following are some of the contingencies every buyer and seller should be familiar with before embarking on a real estate transaction:

Appraisal Contingency

This contingency requires that the buyer obtain, at his or her expense, a written appraisal of the property from a Florida-licensed appraiser. If this contingency is placed in the contract, the value of the appraisal must meet a certain minimum amount, as specified and agreed upon in the contract. If the appraisal’s results are less than the agreed amount, the buyer has one of two options: terminating the contract and receiving a full refund of their deposit or waiving this contingency and proceeding with the contract. The appraisal contingency is usually found in a separate addendum that is added on to the standard “AS IS” contract.

Financing Contingency

Also known as the “mortgage contingency,” this gives the buyer a certain timeframe to apply for and obtain financing for the purchase of the property. It protects the buyer by allowing them to back out of the contract with their deposit in the event that they cannot get the funds needed to go forward with the purchase. The financing contingency sets a date by which the buyer must get financing or else terminate the contract. The buyer has until this date to secure a loan approval, terminate the contract, or request an extension that must be agreed to in writing by the seller. If the buyer fails to take any of the aforementioned actions, the contingency is waived and their deposit is placed at risk if the transaction fails to close.

Inspection Contingency

Also called a “due diligence contingency”, it gives the buyer a specified timeframe to inspect the property for any issues such as with the plumbing, roof, electrical wiring, finishes, and so on. If issues are discovered, the buyer or their professional inspector must deliver the findings to the seller, who can agree to cover the cost of repairs or provide the buyer with the credit. Under the standard terms of the “AS IS” Contract, however, the seller is not obligated to do either. If the buyer cannot reach an agreement with the seller, the buyer can timely cancel the contract prior to the expiration of the inspection period and receive his or her deposit back.

House Sale Contingency

With this contingency, the buyer has a specified amount of time to sell their existing home and use the proceeds to help finance the one they are purchasing. If they cannot sell the home for the specified asking price, the buyer can back out of the contract without legal consequences. This also gives the seller the right to cancel the contract if the buyer’s home is not sold for the requisite amount within the specified timeframe. This type of contingency language has to be specifically added to the FAR/BAR “AS IS” Contract, as it is not contained in the standard contract terms.

Proof of Lease Contingency

If the subject property is being leased at the time of the transaction, the seller is obligated to make you aware of this fact and provide a copy of the executed lease. It is not unheard for buyers to purchase a property only to discover after closing that someone is living there based on a previous lease. This will lead to an inconvenient, and possibly legally-fraught, situation for everyone. This contingency ensures that no such surprises will spring up on you when you acquire the property.

The Bottom Line of the FAR/BAR “AS IS” Contract

Although the FAR/BAR “AS IS” Contract is designed to offer a streamlined and standardized approach to real estate transactions, it pays to have a title and closing agent that offers additional guidance in complying with these contingencies and ensuring the other party does the same. As an attorney-owned and operated title company, Marina Title has the crucial legal and industry expertise you need for a smooth and timely closing.

 

To learn more about our services as closing and title agent, contact (305) 901-5628 or email info@marinatitle.com.

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