When a home goes under contract, many assume it’s a done deal, but in reality, most real estate contracts include contingencies, or conditions that must be met for the sale to proceed. These clauses are designed to protect both buyers and sellers and offer a legal way to exit the agreement if something doesn’t go as planned.
One of the most common contingencies is the home inspection contingency. This allows the buyer to have the property professionally inspected after the offer is accepted. If the inspection uncovers serious issues, such as foundation problems, roof damage, or plumbing concerns, the buyer has the right to negotiate repairs, ask for a price reduction, or even walk away from the deal without losing their earnest money.
Another widely used contingency is the financing contingency, also known as a mortgage contingency. This protects the buyer in case their loan application is denied or the terms change in a way that makes financing impossible. For example, if a buyer loses their job before closing and can no longer qualify for a mortgage, this contingency allows them to cancel the contract without financial penalty.
A third key contingency is the appraisal contingency, which comes into play when a lender requires an appraisal to determine the home’s value. If the appraisal comes in lower than the agreed-upon purchase price, the buyer can renegotiate the deal or cancel it. This protects buyers from overpaying for a property and helps avoid problems with financing shortfalls.
Many buyers who already own a home may include a home sale contingency, which gives them a window of time to sell their current property before being obligated to purchase a new one. If their existing home doesn’t sell within the agreed timeframe, they can exit the deal on the new home without penalty.
Buyers are also protected by title contingencies, which allow time for a title search to ensure the seller has clear ownership of the property. If issues like unpaid liens or unresolved disputes are discovered, the buyer can cancel the contract if they aren’t resolved before closing.
For homes in a community governed by a homeowners association (HOA), buyers often include an HOA document review contingency. This gives them time to review the rules, financials, and bylaws. If they find something that doesn’t align with their needs, like restrictions on short-term rentals or upcoming fee increases, they can opt out of the contract during the review period.
Understanding how these contingencies work, and how they protect your interests, is an important part of any real estate transaction. They create flexibility and safety nets that allow both buyers and sellers to move forward confidently. If you’re unsure how contingencies apply to your situation, it’s always wise to consult a real estate agent or attorney who can walk you through the process and ensure your rights are protected.
For more information, download our Sellers Guide.