Why Do Contingencies Matter?

Understanding Real Estate Contingencies: A Quick Guide

When navigating the world of real estate, you might encounter the term “contingency.” But what does it actually mean? Let’s break it down in simple terms:

A contingency is essentially a safeguard in a real estate contract, designed to address unforeseen circumstances that might arise during the buying or selling process. These clauses ensure that certain conditions must be met for the transaction to move forward. Let’s explore some of the most common contingencies and how they might impact your real estate journey.

Appraisal Contingencies
An appraisal contingency can protect either the buyer or the seller, depending on how it’s written. This clause kicks in if a property’s appraised value doesn’t align with the agreed-upon sale price. For instance:

If the appraisal comes in lower than expected, the buyer might renegotiate or back out without penalty.
If the appraisal is higher, the seller might seek to confirm the agreed price holds steady or explore other options.
Association or Park Approval Contingencies
When purchasing a condominium or a home in a mobile home park, approval from the condo association or park management is often required. Buyers can make their offer contingent upon receiving that approval, ensuring they aren’t locked into a purchase without the green light to move in.

Home Inspection Contingencies
A home inspection contingency allows buyers to have the property inspected after their offer is accepted but before the sale closes. This is an opportunity for buyers to examine the property’s condition and potentially negotiate repairs or credits—or even walk away if major issues arise. Common inspections include:

Structural and safety assessments
Plumbing, electrical, and HVAC system evaluations
Pest or radon inspections
Financing Contingencies
This is one of the most widely used contingencies in real estate. A financing contingency protects buyers who need a mortgage to purchase the property. If the buyer cannot secure the necessary loan, this clause allows them to exit the agreement without facing penalties.

Other Contingencies to Consider
Beyond these common types, contingencies can address a variety of unique situations, such as:

The seller finding a suitable new home.
The buyer selling their current property.
Attorney or accountant review of the contract.
Securing insurance or specialized coverage like flood insurance.
Why Contingencies Matter
When making an offer, it’s important to consider any key factors or requirements that could influence your ability to purchase the property. These contingencies act as safety nets, giving you peace of mind during what can be a complex process.

However, it’s important to remember: real estate agents are not attorneys. While your agent can guide you on how contingencies work, only a legal professional should draft or review specific contingency language. For the best protection, always consult with an attorney when preparing or reviewing your purchase agreement.

Final Thoughts
Contingencies are your way of saying, “Let’s move forward—but only if these important conditions are met.” They’re not just a tool for protection—they’re a smart way to approach one of the biggest decisions of your life.

If you’re ready to buy or sell and need expert guidance, feel free to reach out. I’m here to help you navigate every step of the process!