What’s a Contingency in Real Estate?

A contingency in a real estate transaction is a way of setting a rule that has to be met before the deal can go through. It’s an agreement between the buyer and seller that says, “This sale will only happen if certain things are done first.”

For example, the buyer might need to get approved for a loan, sell their current home, or have the house inspected to make sure there are no big problems. If those things don’t happen, the buyer can potentially back out of the deal. The idea is that one party can terminate the deal without losing their Earnest Money. It’s a way to protect both sides while they work out the details.

Common Contingencies

1. Inspection Contingency
   This lets the buyer have the home inspected to check for problems like a leaky roof, bad plumbing, or other issues. If something big is wrong, the buyer can ask the seller to fix it, lower the price, or cancel the deal without losing money.
2. Financing (or Loan) Contingency
   This protects the buyer if they need a mortgage (loan) to buy the house. It says the buyer has time to get approved for the loan. If they can’t get the loan, they can back out of the deal.
3. Appraisal Contingency
   If a buyer gets a loan, the bank sends a person to see if the house is worth the price the bank is lending to the buyer.  This is called an appraisal. If the house appraises for less money, the buyer can negotiate with the seller or back out of the deal.
4. Home Sale Contingency
   This is for buyers who need to sell their current home before they can buy the new one. It says the deal only moves forward if the buyer’s old home sells by a certain date.
5. Title Contingency
   This ensures the home’s legal ownership is clear. If there are problems, like unpaid taxes or claims on the property, they need to be fixed before the sale can happen.
6. Other Contingencies
   Sometimes there are special rules, like making sure the home passes certain tests (like for pests or radon) or that it’s approved for specific use (like adding a pool or starting a business).

Each of these protects the buyer so they don’t get stuck in a deal that isn’t fair or affordable for them.

Additional Resources