What is a Contingency in Real Estate?

A contingency is a condition or clause in a real estate purchase contract that must be satisfied before the transaction can be completed. Contingencies protect the buyer (and sometimes the seller) by providing a legal way to cancel the contract and receive a refund of earnest money if certain conditions are not met within specified timeframes. The most common contingencies include: financing contingency (buyer must obtain mortgage approval), inspection contingency (buyer has the right to inspect the property and negotiate repairs or cancel if significant issues are found), appraisal contingency (property must appraise at or above the purchase price for the loan to be approved), title contingency (title must be clear of undisclosed defects or liens), and sale contingency (buyer must sell their existing home before purchasing the new one).

Each contingency typically has a specific deadline by which it must be waived, satisfied, or exercised. If a contingency deadline passes without the buyer taking action, the contingency may automatically be waived or the contract may become void, depending on the contract terms. Buyers can voluntarily waive contingencies to make their offer more competitive in a hot market, but this increases their risk.

Removing the financing contingency means the buyer may lose their earnest money if the loan falls through. Removing the appraisal contingency means the buyer must cover any gap between the appraised value and the purchase price.