What Exactly is a Contract Contingency?

Contract contingencies are conditions or stipulations included in a purchase agreement that must be satisfied for the contract to move forward or be legally binding. They provide certain protections and allow parties to back out of the contract if specific conditions are not met. Contingencies are typically included to safeguard the interests of the buyer and ensure that certain requirements are fulfilled before finalizing the transaction.

Here are some common contract contingencies in real estate:

1. Financing Contingency: This contingency states that the purchase of the property is contingent upon the buyer securing satisfactory financing or mortgage approval within a specified timeframe. If the buyer is unable to obtain financing, they can cancel the contract without any penalty.
2. Inspection Contingency: This contingency allows the buyer to conduct a professional inspection of the property within a specific period. If significant issues or defects are discovered that the buyer is not willing to accept, they may negotiate repairs, request a price reduction, or choose to terminate the contract.
3. Appraisal Contingency: This contingency stipulates that the purchase is contingent upon the property’s appraised value meeting or exceeding the agreed-upon purchase price. If the appraisal comes in lower than the purchase price, the buyer may renegotiate the price or, in some cases, terminate the contract.
4. Sale of Existing Home Contingency: When a buyer needs to sell their current home before completing the purchase, this contingency allows them to make the contract contingent upon the successful sale of their existing property within a specified timeframe.
5. Title Contingency: This contingency ensures that the buyer will receive clear and marketable title to the property. If any issues with the property’s title, such as liens or encumbrances, arise during the title search, the buyer may have the option to address and resolve them or cancel the contract.

Contingencies provide a way for buyers to mitigate risks and protect their interests in a real estate transaction. It’s important for both buyers and sellers to carefully review and understand the contingencies included in the purchase agreement, as they outline the conditions that must be met for the contract to move forward.