What are Contingencies?

Contingencies are conditions in the Purchase and Sale Agreement that protect the buyer’s interests. They make the completion of the sale dependent on whether the buyer’s conditions are met. If these conditions are not met, contingencies allow the buyer to cancel the contract and still keep their earnest money.

Types of Contingencies: 

  • Financing Contingency: allows the financed buyer time to obtain financing or cancel the contract if they cannot secure a loan. 
  • Appraisal Contingency: allows the buyer to cancel the contract if the home appraisal is less than the offer amount
  • Inspection Contingency: allows the buyer to ask for a discount, repairs, repair credits, or to cancel the contract if there are any problems uncovered during the home inspection.
  • Home Sale Contingency: allows the buyer a specific timeframe to sell their current home (ex. 30 to 60 days.) If the buyer cannot sell their home within the agreed-upon time frame, the deal is canceled. 
  • Title Contingency: allows the buyer to review the title report, object to any title issues, and cancel the contract if the property does not have a clean title

Other contingencies include a termite certification and the establishment of a reasonable timeframe for closing the sale.

Why do Contingencies matter?

Real estate contingencies matter because they protect the buyer’s interests and earnest money if their conditions aren’t met during the closing process. However, contingencies can also make the buyer’s offer less competitive during a seller’s market; a seller may be less likely to choose an offer with contingencies to reduce the likelihood of a failed closing.

When a buyer invokes a contingency, they can cancel the contract or ask for a change in terms. So, for example, if issues are uncovered during the inspection, the buyer can request repairs, a discount on the sale price, or repair credits.

What is the process of invoking a Contingency?

The seller has a certain number of days (defined by the PSA) to respond to the buyer’s requests. If the seller disagrees, the buyer has a specified number of days to either waive the contingency or cancel the contract and keep their earnest money. If the seller agrees, the sale continues.