Contingency in Real Estate: Meaning, Buyer Example, Video Explanation

Eric Stewart September 17, 2022


“Contingency” – What Does Contingency Mean for Real Estate?

If you’ve ever bought or sold a house, you may have experienced confusion over all of the terminology involved in the process, such as contingency. Real estate contracts are full of legal jargon that can be hard to understand, especially if it’s your first time buying or selling.


What does the word “contingency” mean in sales, especially in real estate?


What Does Contingency Really Mean?


Contingency is a simple word from Latin roots meaning to hold together. Wait, if it means to hold together, why is it known as a way out of a contract? Well, consider buying real estate without any contingencies. Would you purchase a home if you couldn’t inspect it, do an appraisal, or check for termites? Or have a loan contingency if you need to get a mortgage? No, hopefully you wouldn’t. You need the contingency to hold the contract together even though, if a contingency isn’t fulfilled, the contract will die.


Robert Garcia, Realtor® and our Director of Operations, explains this term in further detail and why it’s important when it comes to real estate transactions.



What Holds a Real Estate Contingency Contract Together?

The contract is held together by a promise between the buyer and the seller in real estate – that the buyer will pursue financing, inspections, etc., and that when the settlement date arrives, the seller will provide the property in substantially the same condition as at the time of purchase. The buyer and seller also agree that to move forward with the contract, they will resolve any home inspection issues, with the buyer accepting the home “as is”, the seller agreeing to fix the items of concern, or some sort of compromise.


I sell over 150 homes a year and in a “normal” real estate transaction, I see contingencies all the time. They’re a way for the buyer to purchase the home and pre-agree that certain conditions have to be met for settlement to occur, and the seller is willing to grant those contingencies.


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Available Contingencies

Recently I sold a home to a couple moving from Boston, MA. They purchased a home non-contingent on the sale of their existing home, meaning they would buy the property whether their current home in MA sold or not, but they did ask for the following contingencies:


  • A home inspection to check the condition of the property
  • A termite inspection to make sure those little critters hadn’t eaten up the walls or floor joists
  • A financing contingency to be sure the lender would give them a mortgage
  • A home appraisal to make sure the property was worth what they were paying for it from a licensed appraiser’s standpoint


All four contingencies were met, settlement occurred, and everyone was happy.


Contingency Example as a Home Buyer

Let’s say you’re in the process of buying a home. In the contract, you include a contingency for a home inspection. If the home inspection report comes back with undesirable results, the contingency allows you to have several options. Instead of being stuck in a binding agreement, you can now renegotiate some of the items found in the inspection report or back out of the contract altogether.


Contingencies essentially allow you an exit out of a binding legal agreement, so you can move on to a different home purchase that is better for you. Homebuyers should know how to use contingencies to their advantage.


Do You Need to Ask for All Contingencies?

To win in a multiple contract scenario against other buyers, sometimes you have to consider which contingencies you have to have. Recently I sold a property where a purchaser did an inspection of the property prior to even submitting an offer on the home. This way, the seller got an offer from the buyer knowing up front that the buyer wasn’t going to now negotiate for something further on the home inspection, since the home inspection was already resolved. In that case there were just a couple of contingencies on the contract – for financing and the settlement of the buyer’s current property.


Contingencies Are Time Sensitive

Contingencies are normal and expected in real estate. Remember this though: If there are contingencies, there are deadlines. On the average real estate contract, time is of the essence, so if you miss a deadline by a minute, you’ll have lost that contingency and won’t be able to get it back. Make sure you observe the contingencies carefully whether you’re a buyer or a seller, and you’ll have a very happy selling experience.


Ready to Write a Competitive Offer with Contingencies?

The agents of the Eric Stewart Group of Long & Foster can help. Our agents will coach you through the process of writing the strongest offers in the midst of a very competitive market. If you’re ready to beat the competition with an incredible offer, head to our Listing Page to find available homes and get into contact with one of our experienced agents! Or contact us directly here.

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