In real estate, contingencies are terms and conditions contained in a purchase agreement that must be met for the transaction to advance. These provisions protect both buyers and sellers by allowing either party to withdraw from the contract without penalty if certain conditions are not met.
Although not required, contingencies are standard in most real estate contracts, and some are especially important depending on where you purchase. For example, if you are purchasing in a wildfire-prone area, such as Los Angeles, including home insurance contingencies could be a wise move for your property to insure.
This Redfin article explains how contingencies work, which to expect, and how to avoid expensive set breaks during the home viewing process.
In this article:
1. Home inspection contingency
This is one of the most frequently used contingencies in real estate. This clause gives the buyer the right to professionally inspect the home, typically 7-10 days after the offer is accepted. And if the inspection reveals serious problems such as foundation damage, roof problems, molds, etc., the buyer can:
Cancel the purchase price or renegotiation agreement for terms and conditions that require repairs or credits from the seller and retain a serious money deposit
➤ In a home inspection emergency, it helps buyers avoid unexpected repair costs after closing.
2. Evaluation contingency
If the buyer funds the home, the lender will need an assessment to ensure that the property’s value supports the loan amount. If the rating is lower than the agreed purchase price, the buyer may:
Prices covering cash differences end the contract
Renegotiations are common in valuation contingencies, giving the parties the opportunity to adjust prices or terms to reflect the value of the house.
➤The unexpected situation of this property protects the buyer from overpayment, and the lender from providing more funds than the home.
3. Funding (mortgage) contingency
The financing contingency, also known as a mortgage contingency, allows buyers to retreat sales if they are unable to secure a mortgage approval, which is usually 21-30 days. Reasons for rejection include credit issues, job changes, or changes to the terms of the loan.
If the funds collapse, buyers can withdraw and get serious money back. However, many buyers work with lenders to explore alternative financing options before cancelling.
➤This contingency protects the buyer’s obligation to purchase a home that he cannot afford to raise funds.
4. Title Contingency
If the unforeseen circumstances of the title reveal issues relating to ownership or property rights, the buyer is given the right to review the results of the title search and cancel the contract. Title companies usually perform this search immediately after the contract is signed.
The general title questions are:
Unpaid Property Tax or Contractor Lien Boundary Disputes or Agents
If the search reveals an issue, sellers are generally given a window to resolve it, such as clearing a lien or fixing a legal error. If a clear title cannot be delivered by the deadline, the buyer can retrieve the transaction and collect serious money.
➤This unforeseen situation protects buyers from inheriting legal, financial, or ownership complications associated with the real estate.
5. Home sales contingency
Due to unforeseen circumstances in home sales, the purchase depends on the buyer who sells the current home within a certain period of time. If the buyer cannot sell the house in time, they can cancel the contract without losing serious money.
This contingency is often necessary for buyers who rely on revenue from existing homes. However, sellers may find offers with this contingency unattractive as they introduce the possibility of uncertainty and delays.
Contracts containing this clause often specify important details such as whether the buyer’s current home is already under contract, and how long it is allowed to end the sale. Sellers can counter with kick-out clauses. This will allow you to continue your home marketing and accept backup offers.
➤This contingency protects the buyer from carrying two mortgages and prevents him from being locked up in a new purchase until the current home is sold.
6. Home insurance contingency
The emergency situation of home insurance allows buyers to ensure that they can obtain the right homeowner’s insurance for the property at a reasonable cost. If the buyer is unable to secure compensation due to factors such as location, condition, or risk exposure, they may cancel the contract without penalty.
This type of contingency in real estate is especially important in areas prone to natural disasters such as floods, wildfires and hurricanes.
➤ Insurance contingencies prevent buyers from being locked up in purchases that they cannot or cannot afford to insure.
7. Kickout clause/contingency
A kick-out clause is the contingency used by a seller when accepting offers that involve contingency in a home sale. This allows the seller to continue marketing his property and accept backup offers even after he has signed a contract with the buyer.
If another buyer submits a stronger offer, the seller can notify the original buyer.
Remove contingencies from their home sale and proceed with your purchase or leave to allow sellers to accept new offers
This clause must be clearly outlined in your purchase agreement, including the required notice period and response time frame.
➤ Kickout clauses prevent sellers from being locked up in a long contract with buyers that may not be able to close, and in the event they arise, they do not give them a path to pursuing a better qualified offer.
Real Estate Contingency FAQ
What is the contingent meaning in real estate?
An unforeseen situation is the terms and conditions that must be met for a real estate transaction to proceed. If the conditions are not met, the contract can usually be cancelled without a penalty.
What contingencies should you include when buying a home?
The contingencies to be included will ultimately depend on factors such as the state of the home, location, and financial situation. That said, most buyers benefit from the inclusion of inspections, assessments, and contingency financing, especially if they are receiving a mortgage.
Additional contingencies may be particularly important in certain areas. For example, if you are buying a St. George home where wildfires are at risk, or in a coastal Florida city like Fort Lauderdale or Naples, where it is prone to hurricanes and flooding, it may be wise to include a home insurance contingency.
Do real estate contracts require contingencies?
No, but they are common. Buyers often include them to protect against risks such as funding failure and major household defects. Abandoning the unforeseen situation will strengthen the offer, but it will increase the buyer’s exposure to risk.
What is the difference between pending and conditions?
The contingent list is still under contract, but is waiting for certain conditions to be met. A pending list means that all contingencies have been cleared and the sale is in the final stage before closing.
Is it dangerous to abandon contingency?
yes. Abandoning contingencies, such as inspections, can make the offer more competitive, but it increases the financial and legal risks of the buyer. If problems arise, the buyer may not have a contractual approach.
Can I delete the contingency after the offer is accepted?
Yes, after the offer is accepted, the buyer may voluntarily remove or waive any contingency or after a certain deadline has passed. In some cases, buyers may need to formally remove them in writing to continue moving forward with the agreement.
Can the seller accept another offer while the property is conditional?
In most cases, no unless the contract includes a kickout clause. Even one, the seller is usually obligated to respect the original contract while the contingency is resolved.
