A contingency is a condition written into a purchase agreement that must be satisfied before the transaction is legally binding or before closing can occur. Contingencies protect one or both parties by creating a legal exit — if the condition is not met within the specified timeframe, the affected party can cancel the contract, typically without penalty and with their earnest money refunded. Understanding contingencies is crucial for both buyers and sellers, as they define the "escape hatches" in the contract.
The most common buyer contingencies include: the financing contingency (the buyer must obtain mortgage approval — if the loan is denied, the buyer can cancel), the appraisal contingency (the property must appraise at or above the purchase price — if it appraises low, the buyer can renegotiate or walk away), the inspection contingency (the buyer can have the property inspected and cancel or negotiate repairs based on the findings), and the title contingency (the property must have clear title — if title defects cannot be resolved, the buyer can cancel). Learn about the mortgage pre-approval timeline.
Less common but important contingencies include: the home sale contingency (the buyer must sell their current home before purchasing — this protects the buyer but makes the offer less attractive to sellers), the attorney review contingency (providing a window for legal review of the contract), the HOA document review contingency (giving the buyer time to review HOA rules, finances, and restrictions), and the insurance contingency (the buyer must be able to obtain homeowners insurance at a reasonable cost).
Each contingency has a deadline specified in the contract. If the deadline passes without the buyer formally exercising the contingency (by providing written notice of cancellation), the contingency may be deemed waived, and the buyer loses the protection it provided. Missing a contingency deadline is one of the most common — and costly — mistakes in real estate. Buyers should track all deadlines carefully and communicate promptly with their agent and attorney.
In competitive markets, buyers sometimes waive contingencies to make their offer more attractive. While this can help win a bidding war, it carries significant risk — for example, waiving the inspection contingency means the buyer cannot cancel based on inspection findings, even if major problems are discovered. At Beycome Title, we track all contract contingency deadlines as part of our closing coordination and keep all parties informed of upcoming deadlines. Get your free title quote to start the closing process.