Understanding Contingencies in Real Estate: What Buyers and Sellers Need to Know

When you’re buying or selling a home, you’ll likely hear the word “contingency” come up during negotiations. But what exactly does it mean, and how does it impact your transaction? Here’s a straightforward guide for both buyers and sellers.

What Is a Contingency?

A contingency is a condition written into a real estate contract that must be met for the sale to move forward. If the contingency isn’t satisfied within a certain timeframe, the party it protects (usually the buyer, but sometimes the seller) can walk away from the deal without penalty.

Contingencies act as safety nets, protecting you from unexpected issues, like problems uncovered during inspection or trouble securing financing.

Common Types of Contingencies

For Buyers

• Inspection Contingency

• Let buyers have the home professionally inspected.

• If major issues are found, buyers can negotiate repairs, ask for a price reduction, or back out entirely.

• Appraisal Contingency

• Ensures the home appraises at or above the agreed purchase price.

• If the appraisal is low, buyers can renegotiate or cancel the contract.

• Financing (Mortgage) Contingency

• Gives buyers time to secure a mortgage.

• If financing falls through, buyers can exit the deal without losing their earnest money.

• Home Sale Contingency

• Allows buyers to make the purchase dependent on selling their current home.

• If they can’t sell in time, they can withdraw from the contract.

For Sellers

• Purchase Contingency

• Sometimes, sellers include a contingency that they must find and secure a new home before finalizing the sale of their current one.

• Title Contingency

• Ensures the property’s title is clear of liens or legal issues before closing.

How Do Contingencies Work?

1. Negotiation

• Contingencies are discussed and agreed upon when the offer is made.

• Both parties must sign off on all contingencies for them to be valid.

2. Timeframes

• Each contingency has a deadline (e.g., 7 days for inspection).

• If the condition isn’t met by the deadline, the protected party can cancel the contract or renegotiate terms.

3. Resolution

• If the contingency is met (e.g., the home passes inspection), the sale moves forward.

• If not, the contract can be voided, and the earnest money is usually refunded to the buyer.

Why Are Contingencies Important?

• For Buyers: They offer protection against surprises, such as hidden damage or financing issues.

• For Sellers: They clarify what needs to happen for the sale to close and can protect against buyers who aren’t fully committed.

Pros and Cons

Pros for Buyers	Cons for Buyers	Pros for Sellers	Cons for Sellers
Protects earnest money	Too many contingencies can weaken	Clarifies the buyer’s obligations	May delay or jeopardize the sale
Allows for negotiation	Your offer in a competitive market	Can negotiate deadlines	May have to accept more risk
Provides exit options	May lose out to non-contingent offers

Key Takeaways

• Contingencies are customizable; work with your real estate agent to determine which ones are necessary for your specific
  situation.

• Don’t overdo it: Too many contingencies can make your offer less attractive, especially in a seller’s market.

• Deadlines matter: Missing a contingency deadline can mean losing your protections.

In summary:
Contingencies are essential tools for managing risk in real estate transactions. Buyers and sellers should understand how they work, negotiate them carefully, and use them to ensure a smooth, fair, and secure home sale or purchase.

Written by Malcolm Davis of Homevets Realty LLC.

📞 Contact me at 254-419-5073
📧 Email me at mrdavis324@outlook.com

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