What are Contingency Clauses?

Contingency clauses are important elements of real estate contracts that protect buyers and sellers by ensuring that certain conditions are met before the contract becomes binding. For those new to real estate transactions, understanding these clauses is crucial.

Now, before I answer…..obviously, I am not a lawyer and cannot give you legal advice or the full legal answer to this question….but I will cover the layman’s answer as it relates to real estate contracts. Which I deal with every day.

Here's a breakdown of the most common contingency clauses:

Inspection Contingency

This clause allows the buyer to conduct a home inspection within a specified timeframe. If significant issues are found that the seller is unwilling to address, the buyer can typically withdraw from the contract without penalty.

Appraisal Contingency

With an appraisal contingency, the buyer's offer is contingent on the home appraising for at least the purchase price. If the home appraises for less, the buyer can renegotiate the price or walk away from the deal.

Financing Contingency

A financing contingency protects the buyer in case they are unable to secure a loan to purchase the property. If the buyer is unable to obtain financing, they can back out of the contract.

These are simplified explanations, and each contingency can have specific terms and conditions that vary by contract. It's important for buyers and sellers to understand these clauses fully before entering into a real estate transaction. While sellers can also use contingency clauses, they are more commonly utilized by buyers to protect their interests in the purchase process.