What is a Contingency?

Contingencies are clauses in a contract that give either the seller or the buyer a way to legally cancel the contract if certain conditions or timelines aren’t met.  For example, a common contingency used by Buyers who make an offer on a new home before selling their existing home is the standard "Sale Contingency".  Typically such an offer is made contingent upon the sale of the Buyer's existing home, which means that if their existing home does not sell during a certain time period, they can cancel the purchase contract and retain their deposit.  

All contingencies include time periods.  In the above example, if the Buyers are able to sell their present home within the specified time period, the purchase of the new home can go forward.  But if the home fails to sell by the deadline, the Seller has the option of canceling the deal and putting their home back on the market, or accepting an offer from a different Buyer. They may also choose to extend the contingency period for the existing Buyers if they don't mind waiting. 

Remember: every contract is unique.  Contingencies may be written for virtually any concern of either the buyer or seller.  Commonly used contingencies include:

Financing.  This is a standard contract contingency that states that the sale of the home is dependent  on the buyer being able to obtain financing.

Appraisal. Most contracts also include a contingency that requires an appraised value at or above purchase price. Since lenders nearly always require such an appraisal, sellers usually don’t have a problem with this.

Home Inspections.  Probably the most common type of contingency is the "Inspection Contingency."  There are any number of inspections for which a contingency might be included.  Some of the more common inspection contingencies include home inspections, pest inspections, water and sewage system inspections, roof inspections, inspections dealing with the presence of radon or mold, verification of lot size (survey), etc.

As with most items in real estate contracts, contingencies are negotiable.  Always review the contingencies in a contract before signing to be sure that you are comfortable with all contingencies proposed by the other party, and that you or your realtor has included all the contingencies that you may feel are necessary for your own peace of mind.