What Do Contingencies Mean in Real Estate?

What is a contingency in real estate?

There are many types of contingencies in real estate. A contingency is a clause in a contract that allows either party to withdraw from the transaction at certain conditions. The most common contingencies are those which protect the buyer and seller, but they can also be used to protect third parties such as mortgage lenders or other interested parties.

There are some standard contingencies that apply across most real estate transactions, however it is important to understand that even these can be altered by agreement of both parties (i.e., if you want your home inspection contingency removed). In addition, there may be additional clauses added as part of an agreement or purchase between two parties that require one or both sides to perform some type of action before closing on their property! This could include things like paying off certain debts or putting money into escrow accounts for items like taxes and insurance costs — making sure everything works out right before writing checks out towards closing day!

Here are some common contingencies.

Inspection contingency

An inspection contingency is a clause that allows the buyer to have an inspection done before closing. The buyer is responsible for paying the cost of their own inspections, and if they don’t like what they find, they can cancel the contract without penalty.

Selling a Home Contingency

Often times buyers need to sell the home in which they are currently living in order to purchase a new home.  If that’s the case, they would make an offer that is “contingent upon” the sale of their existing home.  If the buyer is unable to sell their home within a certain period of time agreed upon within the contract language, then this contingency has not been satisfied and then the contract can become void.

Appraisal Contingency

Appraisal contingencies protect the buyer by requiring that the property must appraise for the indicated sales price, at minimum, or the contract can be nullified.  Appraisal contingencies are used because banks will not loan more money than what the house and property is worth. This clause may also indicate that the seller can opt to reduce the price to the appraised value.

Financing Contingency

A “financing contingency” is a clause in your contract that indicates that you will have to get a loan for the property before you can buy it. If you can’t get a loan, then the deal isn’t valid and you don’t have to buy the property. In other words, if this contingency doesn’t work out, there’s no obligation on your part to purchase the home at all—and there’s no financial penalty for rejecting the offer.  In some contracts, the appraisal contingency and the financing contingency are linked.

This type of contingency is useful if you’re not sure about getting financing for an expensive home yet (or if your budget requires significant savings). The seller may include one or two additional contingencies in addition to this one; however, if even just one out of three contingencies gets rejected then everything goes back on hold until another buyer comes along.

Title Contingency

A title contingency is a clause in your contract that says if the seller’s property does not meet all the requirements of your purchase agreement, you can back out and get your deposit back. Title issues are common and include:

  • A lien on the property (such as an unpaid mortgage or a judgment against the owner)
  • The company who insures title cannot issue insurance on the house because it has been damaged by fire or water damage, which is called “troubled title” because of its potential to lead to foreclosure proceedings.

Title issues are usually discovered during a title search conducted by an attorney. If there is an issue with the title, both parties may negotiate terms for resolving it before signing on any dotted lines; this is called a closing contingency in real estate-speak.

Home Owners Insurance Contingency

Another contingency that is often overlooked is the home insurance contingency. Homeowners insurance should be purchased before the closing date and will be required to close on your new home. The insurance company will not insure a home that has not been inspected and inspected properly by a certified home inspector. In most cases, you must have an inspection prior to closing in order to obtain homeowners insurance coverage. However, if you are willing to waive this contingency, they may offer to pay for the cost of the inspection themselves or provide some sort of credit towards their premiums if you choose one of their preferred providers.


You don’t want to get stuck in a bad deal or lose money on your home. But if you know what contingencies are, and how they can affect your purchase, you should be able to avoid them and make the most of your next real estate transaction.

Follow Sander on Facebook:  click here

Here are some other blog posts that might interest you.

How Does Earnest Money Work?

What do Contingent, Under Contract, and Pending Mean?

Turn Your Dream Home Into Reality with Sander Scott!

Contact us today to discover unparalleled service and expertise in finding the property that perfectly matches your lifestyle.