Contingencies
Definition
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Example
A buyer's purchase agreement includes an inspection contingency giving the buyer 10 days to complete a home inspection. During the inspection, the buyer discovers a cracked foundation. The buyer can request repairs, negotiate a price reduction, or cancel the contract and receive a full refund of the earnest money.
Exam Tip
For the exam, know that contingencies are conditions that must be met, not guarantees. A contingency that is not waived or satisfied by the deadline typically allows the buyer to exit the contract. Understand the difference between a condition precedent (must happen before performance is required) and a condition subsequent (can undo performance after the fact).
Related Contracts Terms
Purchase Agreement / Sales Contract
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and Acceptance
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
Counteroffer
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest Money Deposit
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Inspection Contingency
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Frequently Asked Questions
Test Your Contracts Knowledge
Practice with exam-style questions to make sure you can apply Contingencies and other contracts concepts.