Mastering Contingencies in Maine Purchase Agreements: Exam Prep

For aspiring real estate professionals studying for the Maine real estate licensing exam, understanding contract law is absolutely critical. One of the most heavily tested areas within this domain is the use of contingencies in purchase and sale agreements. Because Maine has unique environmental, geographical, and regulatory characteristics, standard contingencies here often look different than they do in other states.

This mini-article will break down the essential contingencies you need to know, how they function under Maine Real Estate Commission (MREC) rules, and how they impact the enforceability of a contract. For a broader overview of the entire licensing test, be sure to review our Complete Maine Exam Guide.

What is a Contingency in a Purchase Agreement?

In real estate contract law, a contingency is a "condition precedent." It is a specific event or condition that must be met for the purchase agreement to become fully binding. If a contingency is not satisfied, the party protected by that contingency can legally back out of the transaction without penalty, making the contract voidable (not void).

Contingencies are primarily used to protect buyers, allowing them to recover their earnest money deposit if something goes wrong. Understanding exactly who is protected and how is a core concept covered in our guide on Maine Buyer vs. Seller Representation.

Common Contingencies in Maine Real Estate

While the Maine Association of REALTORS® (MAR) provides standard forms, licensees must understand the mechanics behind each clause. Here are the most heavily tested contingencies:

Financing and Appraisal Contingencies

Unless a buyer is paying cash, the contract will typically include a financing contingency. This states that the purchase is contingent upon the buyer securing a mortgage commitment within a specified timeframe (often 30 to 45 days).

The appraisal contingency is closely tied to financing. If the property appraises for less than the agreed-upon purchase price, the buyer can terminate the contract, negotiate a lower price, or cover the difference in cash. For the exam, remember that the seller is never obligated to lower the price to meet an appraisal, but the buyer is protected from being forced to buy an under-appraised home.

Building Inspection and Environmental Contingencies

Because of Maine’s rural nature, older housing stock, and harsh winters, inspection contingencies are comprehensive. The standard MAR contract allows buyers to investigate several specific environmental factors. Exam questions frequently test your knowledge of these Maine-specific risks:

• Well Water Quality and Quantity: Many Maine homes rely on private wells. Contingencies often cover testing for arsenic, uranium, radon in the water, and coliform bacteria, as well as flow-rate tests.
• Radon Air Testing: Maine has naturally high levels of radon gas. Buyers typically include a contingency for radon air testing.
• Septic Systems: Homes not connected to municipal sewer systems are subject to the Maine Subsurface Wastewater Disposal Rules. Buyers will use a contingency to have the septic system inspected.
• Pests and Wood-Destroying Insects: Especially relevant for older homes or log cabins in wooded areas.

Title and Survey Contingencies

The buyer's obligation to close is contingent upon the seller delivering a "clear and marketable title." If a title search reveals liens, encumbrances, or boundary disputes, the seller is typically given a cure period (often 30 days in Maine) to resolve the issue. If the seller cannot clear the title, the buyer may terminate the agreement.

Maine-Specific Contingencies to Know for the Exam

To pass the Maine real estate exam, you must be familiar with state-specific regulations that often trigger specialized contingencies.

Mandatory Shoreland Zoning Act

Maine law heavily regulates land use within 250 feet of normal high-water lines of any great pond, river, or saltwater body. Buyers purchasing waterfront property will often include a contingency to verify that the property complies with local Shoreland Zoning ordinances, especially if they plan to expand the footprint of the home, cut trees, or install a new septic system.

Septic Systems in the Shoreland Zone

Under Maine law, if a property is located within the Shoreland Zone and uses a subsurface wastewater disposal system, the buyer must certify whether the system has malfunctioned within 180 days prior to the transfer. Contingencies are often built around the required inspections for these waterfront septic systems.

The Role of Earnest Money in Contingency Failures

What happens to the earnest money deposit when a contingency fails? According to MREC rules, the designated broker holding the earnest money in their trust account cannot simply give the money back to the buyer, even if the buyer is clearly within their contingency rights.

The broker must obtain a written release signed by both the buyer and the seller before disbursing the funds. If the seller disputes the return of the earnest money, the broker must hold the funds in the trust account until the parties reach an agreement, or until a court orders the disbursement. This is a highly testable concept!

Data: Why Do Contracts Fall Through in Maine?

Understanding the real-world application of these contingencies helps contextualize the exam material. Below is a breakdown of the most common reasons contingent contracts fail to reach the closing table.