Contingency
Definition and meaning of Contingency in real estate.
Contingency is a specific clause in a real estate purchase contract that must be met for the transaction to proceed to closing. If a contingency is not satisfied within the agreed timeframe, either party can cancel the contract without penalty.
In more detail
Contingencies protect buyers and sellers by allowing them to walk away from a transaction and recover their earnest money if certain conditions are not met. The most common contract clauses include home inspection, financing, appraisal, and home sale contingencies. For instance, a financing contingency allows the buyer to cancel if their mortgage application is denied.
While contingencies offer safety, having too many of them can make a buyer's offer less attractive to a seller in a competitive market.
Key facts
| Category | Buying & Selling |
|---|---|
| Required timing | Must be satisfied or waived within a specific number of days defined in the contract |
| Common examples | Inspection, financing, appraisal, and home sale clauses |
| Consequence of failure | Allows the contract to be terminated with the earnest money returned to the buyer |
A buyer inserts an inspection contingency into their offer, allowing them to cancel the contract after a home inspector finds major foundation issues.
Frequently asked questions
What does it mean to waive a contingency?
Waiving a contingency means the buyer agrees to proceed with the purchase without that specific protection, which can make their offer stronger but increases their financial risk.
What is a home sale contingency?
A home sale contingency is a clause that allows the buyer to cancel the transaction if they are unable to sell their current home before closing on the new one.
Related terms
Related reading
Sources & references
See our sources and editorial standards.