Real estate contingencies are a traditional element of a real estate transaction. They describe clauses in a purchase agreement that allow buyers to back out of a deal if certain conditions are not met.  

Types of Real Estate Contingencies

Buyers can include several types of real estate contingencies in their purchase agreement. Here are some of the most common:

Financing Contingency

A financing contingency allows buyers to retract an offer if they cannot secure financing for the purchase. This contingency protects the buyer from losing their deposit if they cannot guarantee a mortgage.

Inspection Contingency

An inspection contingency allows the buyer to inspect the property by a professional before finalizing the purchase. If the inspection reveals any major issues or defects, the buyer can negotiate with the seller to have them fixed or back out of the deal.

Appraisal Contingency

An appraisal contingency allows the buyer to back out of a deal if the property is appraised for less than the purchase price. This contingency protects the buyer from overpaying for a property and ensures they get a fair value.

Title Contingency

A title contingency allows the buyer to withdraw if there are any issues with the property’s title. This could include liens, judgments, or other legal issues that could prevent the buyer from taking ownership of the property.

How Real Estate Contingencies Work

Real estate contingencies are typically included in the purchase agreement and must be met before a sale can be finalized. The buyer can withdraw without penalty if any contingencies are unmet. For example, if a buyer includes an inspection contingency in the purchase agreement and the inspection reveals significant issues with the property, the buyer can either negotiate to lower the asking price, make repairs, or back out of the deal. If the seller cannot address the issues, the buyer can cancel the purchase agreement and walk away.

It’s important to note that real estate contingencies are time-sensitive. Buyers must meet the deadlines outlined in the purchase agreement. They may lose the right to back out of the deal if they fail.

Why Real Estate Contingencies Are Important

Contingencies protect buyers from making a bad investment. They allow buyers to thoroughly inspect a property, secure financing, and ensure no legal issues with a title before finalizing a purchase. Sellers are also protected by ensuring the buyer is committed to the purchase and can secure financing. They also provide a clear timeline for the sale and help ensure the transaction runs smoothly.