PSI New Jersey Real Estate State Practice Exam

What clause should buyers include in their purchase offer to ensure they are not obligated to complete the purchase without financing?

1. Contingency clause

2. Escape clause

3. Liquidated damages clause

4. Financing clause

The correct answer is: Contingency clause

Including a contingency clause in a purchase offer is essential for buyers who want to ensure that they are not obligated to complete the purchase without securing financing. This clause acts as a safeguard, making the purchase agreement dependent on the buyer being able to obtain a mortgage or loan approval within a specified timeframe. If the financing does not come through, the buyer has the right to withdraw from the contract without facing penalties, which provides peace of mind and financial protection. While other types of clauses—such as escape clauses and liquidated damages clauses—have their specific functions, they do not serve the same purpose of securing financing. The escape clause typically allows a seller or buyer to exit a contract under certain conditions, while a liquidated damages clause pertains to pre-determined compensation if one party defaults. A financing clause specifically emphasizes the need for financing and directly addresses the buyer's concerns about their ability to fulfill the purchase obligation if funding is not secured. Thus, the contingency clause is the appropriate choice for ensuring buyers are protected regarding financing.