What Are Contingencies in Real Estate?

Key Takeaways:

• Contingencies are conditions that must be met before a home sale can move forward.
• Buyers are more likely to include contingencies when market conditions give them greater negotiating power.
• Inspection, appraisal, and financing contingencies are among the most common protections included in real estate contracts. 

The housing market looks very different than it did during the pandemic, when buyers often waived contingencies to make their offers more competitive. Today, the balance of power has shifted. Today there are 47% more home sellers, giving buyers more negotiating leverage and more opportunities to include protections in their offers.

That’s where contingencies enter the picture. A contingency is a condition written into a purchase agreement that must be met for the sale to move forward. These conditions help protect buyers during the transaction by allowing them to renegotiate certain terms or walk away from the deal without penalty if specific requirements aren’t met.

Although not required, contingencies are a common feature in real estate contracts, and some are especially important depending on the location. For example, a financing contingency allows buyers to back out of a deal if they’re unable to secure a mortgage by a specified deadline.  Keep reading to learn how contingencies work, which ones to expect, and how they can help you avoid costly surprises during the home buying process.

What are contingencies in real estate?

In real estate, a contingency is a condition written into a purchase agreement that must be met for the sale to move forward. These conditions can include the home passing inspection, appraising at value, or the buyer securing financing.

Contingencies act as a safety net for buyers, allowing them to renegotiate or walk away without losing their earnest money deposit if a critical condition isn’t met. At the same time, they provide sellers with a clear framework and timeline, so everyone knows what steps need to be completed and by when.

In a highly competitive market, buyers may choose to waive contingencies to make their offer more attractive to sellers.

Should you include contingencies in today’s housing market?

In most cases, yes. Contingencies help protect buyers from unexpected issues related to a home’s condition, value, financing, or legal status.

During the pandemic housing boom, many buyers waived contingencies to make their offers more competitive. Today, the market looks different. With 47% more sellers than buyers nationwide, buyers generally have more negotiating power and may have greater flexibility to include protections like inspection, appraisal, and financing contingencies in their offers.

That doesn’t mean every buyer should include every contingency. The right approach depends on factors such as local market conditions, the property’s condition, and your financial situation. An experienced real estate agent can help you determine which contingencies are important and whether waiving any makes sense for your specific circumstances.

What is a contingent offer, and how does it work? 

When a buyer submits a contingent offer, it means their offer depends on certain conditions being met, such as inspections, appraisals, or securing financing. The sale can only move forward if these conditions are satisfied.

Once the seller accepts the contingent offer, the home is usually listed as contingent, meaning there’s an active offer, but the sale isn’t final. Home delistings have been on the rise over the past few years, which could point toward deals falling through because of unmet contingencies.

Each contingency has a deadline, called the contingency period. Buyers must complete their due diligence and meet conditions during this set timeframe. Missing a deadline can put their earnest money at risk.

During the contingency period, buyers have opportunities to negotiate. For example, if a home inspection uncovers any issues, the buyer can request repairs, a reduced price, or credits to address any issues found.

What happens if a contingency isn’t met?

If a contingency isn’t satisfied within the agreed-upon timeframe, the buyer typically has the right to terminate the contract and get their earnest money back. Buyers can also choose to renegotiate instead of walking away. For example, after an inspection reveals issues, the buyer might request repairs, credits, or a price reduction.

Remember: deadlines are critical. Buyers must complete all contingency-related tasks within the specified periods. Missing a deadline without an extension could result in losing the earnest money or other legal consequences.

If a contingency isn’t met and the buyer terminates, the seller will typically relist the home or put it back on the market, opening the door for other buyers to submit offers. 

Typical contingency timelines

While timelines vary by market and contract, the following timeframes are common:

The top 8 most common contingencies to consider in your offer

When submitting an offer on a home, including the right contingencies is crucial. Contingencies give buyers the ability to confirm important aspects of the property, financing, and legal ownership before fully committing. 

Below, we’ll explain how the following common real estate contingencies work and the protections they provide:

• Home inspection contingency
• Appraisal contingency
• Financing contingency
• Title contingency
• Home sale contingency
• Home insurance contingency
• Kick-out clause
• HOA contingency

1. Home inspection contingency

The home inspection contingency is one of the most frequently used contingencies in real estate. It gives the buyer the right to have the home professionally inspected, usually within 7 to 10 days after the offer is accepted. If the inspection uncovers significant issues, such as foundation damage, roof problems, or mold, the buyer can:

• Request repairs or credits from the seller
• Renegotiate the purchase price or contract terms
• Cancel the contract and keep their earnest money deposit

2. Appraisal contingency

The appraisal contingency protects buyers from overpaying and lenders from financing more than the home is worth. This comes into play when a buyer is financing a home. Lenders require an appraisal to confirm that the property’s value supports the loan amount. If the appraisal comes in lower than the agreed purchase price, the buyer can:

• Cover the difference in cash
• Renegotiate the price
• Exit the contract

Renegotiation is common, giving both the buyer and seller a chance to adjust the price or terms to reflect the home’s appraised value.

3. Financing (mortgage) contingency

A financing contingency, also known as a mortgage contingency, allows the buyer to back out of the sale if they’re unable to secure mortgage approval, usually within 21 to 30 days. Reasons for denial can include credit issues, job changes, or changes in loan terms.

If financing falls through, the buyer can withdraw from the contract and get their earnest money back. However, many buyers work with their lender to explore alternative financing options before canceling.

4. Title contingency

Title contingencies give the buyer the right to review the results of a title search and cancel the contract if any issues related to ownership or property rights are discovered. The title company usually conducts this search shortly after the contract is signed.

Common title issues include:

• Unpaid property taxes or contractor liens
• Boundary disputes or easements
• Undisclosed heirs or prior claims of ownership
• Errors in public records or deeds

If a problem is found, the seller is generally given a window to resolve it, such as clearing a lien or correcting a legal error. If they can’t deliver a clear title by the closing date, the buyer can back out and recover their earnest money.

5. Home sale contingency

A home sale contingency makes the purchase dependent on the buyer selling their current home within a specified period. If the buyer can’t sell their home in time, they can cancel the contract without losing their earnest money.

This contingency is often used by buyers who need the proceeds from their existing home to complete the purchase. Because the transaction depends on another home sale, sellers sometimes view these offers as less attractive than offers without this condition.

That said, home sale contingencies can be more common in markets where buyers have greater negotiating power and sellers have fewer competing offers to choose from.

6. Homeowners insurance contingency

A homeowners insurance contingency allows the buyer to confirm they can obtain adequate homeowners insurance for the property at a reasonable cost. If the buyer is unable to secure coverage – due to factors like location, condition, or risk exposure – they can cancel the contract without penalty.

This contingency is especially important in areas prone to natural disasters, such as floods, wildfires, or hurricanes, where insurance may be limited or expensive.

7. Kick-out clause/contingency

A kick-out clause is a contingency used by sellers when accepting an offer that includes a home sale contingency. It allows the seller to continue marketing their property and accept backup offers even after entering into a contract with a buyer. 

If another buyer submits a stronger offer, the seller can notify the original, bumpable buyer, who typically has 24 to 72 hours to either:

• Remove their home sale contingency and proceed with the purchase, or
• Walk away and allow the seller to accept the new offer

This clause must be clearly outlined in the purchase agreement, including the required notice period and response timeframe.

8. Homeowners association (HOA) contingency

A homeowners association (HOA) contingency applies to homes or condos governed by an HOA. It gives buyers the right to review HOA agreements, rules, and financial documents before fully committing to the purchase.

If the buyer doesn’t receive the necessary documentation in time, or if they disagree with the HOA’s obligations or restrictions, they can cancel the contract without losing their earnest money.

FAQs about contingencies in real estate

What contingencies should I include when buying a house?

The contingencies you should include depend on the home’s condition, location, and your financial situation. That said, most buyers benefit from including inspection, appraisal, and financing contingencies, especially if they’re receiving a mortgage loan.

In certain areas, additional contingencies may be especially important. For example, if you’re buying a home in St. George, UT where wildfires are a possibility, or in coastal cities like Fort Lauderdale or Naples that are prone to hurricanes and flooding, it can be wise to include a home insurance contingency.

Can a seller back out because of a contingency?

In most cases, sellers cannot back out of a contract simply because they change their mind. However, certain contract terms, deadlines, or seller-specific contingencies may allow a seller to terminate the agreement under specific circumstances. Contract rules vary by state, so buyers and sellers should review their agreement carefully.

What’s the difference between pending and contingent?

A contingent listing is still under contract but waiting for specific conditions to be met. A pending listing means all contingencies have been cleared and the sale is in its final stages before closing.

Is it risky to waive contingencies?

Yes. Waiving contingencies, like the inspection, can make an offer more competitive, but it increases the buyer’s financial and legal risk. If problems arise, the buyer may have no contractual way out.

Can you remove contingencies after an offer is accepted?

Yes, contingencies can be removed or waived after the offer is accepted – either voluntarily by the buyer or after certain deadlines pass. In some cases, buyers may be required to formally remove them in writing to keep the contract moving forward.

Can a seller accept another offer while a property is contingent?

In most cases, no, unless the contract includes a kick-out clause. Without one, the seller is typically obligated to honor the original agreement while the contingencies are being resolved.

Is it common for contingent offers to fall through?

Most contingent offers still make it to closing. That said, when deals do fall through, common reasons include issues with inspections, appraisals, or financing.

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