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What Is A Real Estate Contingency?
A contingency is a condition or action that must be met for a real estate contract to become binding, and gives the parties the right to back out of the contract (cancel) under certain circumstances. As is the case with all facets of the contract, contingency clauses are negotiated between the buyer and seller.

Since purchasing a home is typically the largest transaction of an individual’s life, rarely does anyone buy a home by viewing the property, falling in love and paying cash the same day. A prudent buyer wants to take time and find out more about the property’s condition, value, neighborhood demographics, financing options, etc. In light of that, real estate contracts are written in a manner that gives buyers (and sellers) an opportunity to fully investigate the particulars of a transaction. More specifically, the contract is written with contingencies.

Here are a few examples of contingency clauses found in most real estate contracts (this list is by no means exhaustive) :


An appraisal is a written estimate of a property’s market value completed by an appraiser (the appraiser is a licensed and insured objective third party whose job is to give their professional opinion regarding the market value of the home). The value is based upon a market analysis of recent sales prices for similar properties in the area, and the property’s physical condition.

Obtaining an appraisal is a condition of the buyer’s loan. The value established by the appraiser assures the buyer is not over paying for the property and the lender is not loaning more than the home is worth. The appraisal contingency may permit the buyer to go forward with the purchase even if the established value is lower than the amount the buyer has agreed to pay, or give the seller an opportunity to lower their asking price to the appraised value. The lender will not loan more than the appraised value. In those instances where a buyer wants to purchase a home that appraises for less than the sales price and the seller is unwilling to lower the asking price, the buyer would have to pay the difference between the loan amount and sales price in cash. Of course, if the property does not appraise at or above the sales price, either party can cancel the transaction as permitted by the appraisal contingency.


An inspection contingency gives the buyer the right to have the home inspected within a certain time frame (In California it’s usually around 14 -17 days). This protects the buyer by empowering them to cancel the transaction or negotiate repairs in accordance with the findings of the home inspector. Depending on the wording of the inspection contingency, the buyer and seller may take the following actions :

Approve the report and proceed with closing the transaction
Disapprove the inspector’s findings and cancel the transaction
Ask for an extension of the inspection contingency period and request additional inspections if something needs a closer look
Ask the seller to make a repair, replacement, or grant a monetary concession (if the seller says yes, the transaction advances; if the seller declines the buyer’s request, the buyer may cancel-and request a refund of their earnest money deposit)

The financing contingency gives the buyer an opportunity to obtain financing to purchase the home. This too protects the buyer. If the buyer cannot obtain financing the contract may be cancelled and the buyer can request a refund of the earnest money deposit. As is the case with all contingencies there is a time limit involved. The buyer is given a certain number of days to obtain financing from a bank, mortgage lender, mortgage broker or private lender. If the buyer does not get an extension of the financing contingency from the seller, the buyer must cancel the contract or secure financing by the date specified in the contract. Otherwise the contingency is automatically waived and the buyer is obligated to close the sale-with or without a loan.


Ideally it’s better to sell an existing home before buying another, unfortunately in the real world it doesn’t always go that way. A home sale contingency gives the buyer a certain period of time in which to sell their current home so they can finance the new home. If the buyer’s existing home doesn’t sell at or above the asking price, the buyer can cancel the contract with no further duty or consequence. The home sale contingency protects the buyer, but can prove cumbersome for the seller (the seller may have to pass on other offers while waiting for the buyer’s home to sell). Ultimately the seller has the right to back out of the transaction if the buyer’s home does not sell within the time frame set forth in the home sale contingency.


The termite contingency stipulates that prior to the close of escrow the property must be free and clear of termites, and that any existing termite damage must be repaired. A licensed pest control company conducts an inspection and provides a written report outlining their findings and the cost to correct. If the seller is unwilling or unable to provide the buyer with a termite clearance, the buyer may cancel the transaction.

Again, this list isn’t exhaustive, but represents just a few of the many contingencies that may be negotiated between the buyer and seller.

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