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A seller and I have agreed that no Ernest money will be paid in the contract. However, there are no financial or appraisal contingencies in the contract to void the contract if I can’t get the loan or the house doesn’t appraise for at least the purchase price. My questions is, are these contingencies needed if there is no Ernest money put down?

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  • I'm voting to close this question as off-topic because it is a question about common practise in real estate, not about the law or legal process.
    – user4657
    Feb 28, 2019 at 4:19

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I am assuming that your contract is in a jurisdiction of the U.S. or of one of the several countries with similar contract law.

are these contingencies needed if there is no Ernest money put down?

With or without earnest money, a contract does not need to outline contingencies.

Strictly speaking, outlining in a contract some of these contingencies might even be redundant (but "redundant" should not be construed as "discouraged") because notions of frustration or impracticability of a contract are --by default-- cognizable in contract law. See Restatement (Second) of Contracts at § 265 and 266.

In a context of real estate transactions, a buyer's unexpected inability to secure the funds for the purchase would certainly render the contract impracticable. However, the seller might still be entitled to reasonable restitution in the event of impracticability or frustration. See Restatement at § 377.

For instance, if as a result of that contract the seller missed other opportunities which were provably more profitable, the buyer might have to compensate the seller for that difference. That is one good reason for outlining in a contract what remedies (if any) are available in the event that a contingency precludes the completion of that contract.

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  • The buyer’s inability to secure funds does not frustrate the contract - it just puts the buyer in breach when they cannot settle.
    – Dale M
    Feb 28, 2019 at 20:25
  • @DaleM Only the language of the contract or special circumstances could supersede the notion of frustration. Absent that language, the contract is deemed --in terms of the Restatement at § 265-- "substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made". Except for bad credit history or fraudulent representations, a bank's denial of a loan usually is not the buyer's fault. That denial defeats the basic assumption (in real estate contracts) of buyer's ability to pay the price. Feb 28, 2019 at 21:40
  • The Restatement (Second) of Contracts is available here, now that the law firm of the link in this answer removed that resource and posted some useless "overview of contract law" instead. Jan 3, 2020 at 15:38

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