What Is a Contingency in Real Estate?
In plain English
A contingency is a clause in a real estate purchase contract that allows either party to back out of the deal without penalty if a specified condition is not met. Common contingencies protect the buyer's earnest money and ensure that financing, inspections, and appraisals meet acceptable standards before the sale is finalized.
What Are the Most Common Contingencies?
The three most common contingencies are: Financing contingency — the sale depends on the buyer securing mortgage approval. Inspection contingency — the buyer can negotiate repairs or withdraw if significant defects are found. Appraisal contingency — the sale is contingent on the home appraising at or above the purchase price. Other contingencies include title review, homeowner insurance, and sale of the buyer's current home.
Should You Waive Contingencies?
In competitive markets, some buyers waive contingencies to strengthen their offer. Waiving the appraisal contingency means you agree to cover any gap between the appraised value and purchase price. Waiving the inspection contingency means accepting the property as-is. Waiving contingencies increases risk significantly — you could lose your earnest money or be stuck with a problematic property. Only waive contingencies with full understanding of the financial consequences.
How Do Contingency Timelines Work?
Each contingency has a deadline specified in the contract, typically 5 to 21 days. The inspection contingency might expire in 10 days, meaning you must complete the inspection and negotiate or withdraw by then. Missing a contingency deadline can mean losing your right to that protection. Your real estate agent will track these deadlines and ensure you act within them.
Frequently asked questions
Can a seller have contingencies too?
Yes. A common seller contingency is the right to continue marketing the home and accept a better offer (a kick-out clause). Sellers may also add contingencies related to finding a replacement home or completing repairs before closing.
What happens if a contingency is not met?
If a contingency is not satisfied within the specified timeframe, the party protected by that contingency can typically cancel the contract and receive a full refund of earnest money. The specific process depends on your contract terms and state laws.
Keep exploring
Related terms
Earnest Money
Earnest money is a good-faith deposit a buyer makes when submitting an offer on a home, showing the seller they are serious about the purchase.
Home Inspection
A home inspection is a professional evaluation of a property's physical condition before purchase. It identifies defects and potential issues that can inform negotiations or help buyers avoid costly surprises.
Home Appraisal
A home appraisal is an independent estimate of a property's market value, conducted by a licensed appraiser. Lenders require appraisals to ensure the loan amount doesn't exceed what the home is actually worth.
Closing Costs
Closing costs are the fees and expenses paid at the end of a real estate transaction, on top of the down payment. They typically range from 2% to 5% of the loan amount.