Contingency
A contingency is a condition or clause in a real estate contract that must be satisfied before the transaction can close, allowing buyers to cancel without penalty if the condition is not met.
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Exam Tip
Contingency = condition that must be met. If not met, buyer can cancel and get earnest money back. Know common contingencies: financing, inspection, appraisal.
What is a Contingency?
A contingency is a provision in a purchase agreement that makes the contract dependent on certain conditions being met. If a contingency is not satisfied within the specified timeframe, the buyer can typically withdraw from the contract and receive their earnest money back.
Common Real Estate Contingencies
| Contingency | Purpose |
|---|---|
| Financing/Mortgage | Buyer must obtain loan approval |
| Inspection | Property must pass inspection |
| Appraisal | Property must appraise at purchase price |
| Sale of Buyer's Home | Buyer must sell current home first |
| Title | Clear title must be provided |
| HOA Review | Buyer reviews HOA documents |
How Contingencies Work
| Stage | What Happens |
|---|---|
| Contract Signed | Contingencies included with deadlines |
| Contingency Period | Buyer completes inspections/reviews |
| Satisfied | Contingency removed, contract proceeds |
| Not Satisfied | Buyer can cancel, get earnest money back |
| Waived | Buyer proceeds despite issues |
Contingency Timeframes
| Contingency | Typical Deadline |
|---|---|
| Inspection | 7-14 days |
| Financing | 21-30 days |
| Appraisal | 14-21 days |
| Sale of Home | 30-60 days |
| Title Review | 5-10 days |
Removing Contingencies
| Method | Effect |
|---|---|
| Active Removal | Buyer signs contingency release |
| Passive Removal | Deadline passes without objection |
| Waiver | Buyer removes contingency upfront |
Financing Contingency Details
| Element | Description |
|---|---|
| Loan Type | Conventional, FHA, VA specified |
| Interest Rate | May specify maximum rate |
| Loan Amount | Amount buyer needs to borrow |
| Deadline | Date by which approval needed |
Inspection Contingency Options
| Outcome | Buyer Options |
|---|---|
| Major Issues Found | Cancel contract, request repairs, or renegotiate |
| Minor Issues | Proceed, request credit, or repair |
| No Issues | Remove contingency, proceed |
Waiving Contingencies
| Pros | Cons |
|---|---|
| Stronger offer | Less protection |
| Faster closing | Risk losing earnest money |
| Competitive edge | May overpay if no appraisal |
Exam Alert
Contingencies protect buyers by allowing contract cancellation if conditions aren't met. Common contingencies include financing, inspection, appraisal, and sale of buyer's home. Earnest money is typically refunded if contingency isn't satisfied.
Study This Term In
Related Terms
Earnest Money
Earnest money is a deposit made by a buyer to show good faith when making an offer on a property, which is typically applied to the purchase price at closing.
Due Diligence
Due diligence is the investigation period in a real estate transaction during which buyers thoroughly examine the property, review documents, and verify all aspects of the purchase before finalizing the deal.
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