What Are Real Estate Contingencies?

Buyers often ask their real estate agents to include contingencies in their offer to buy property. A real estate contingency is a condition written into a contract stating that a condition or situation must arise within a given time.

For a real estate agent, it means that they won’t get a paycheck until the contingencies are met. For the buyer, contingencies help safeguard their deposit. For the seller, contingencies mean that they must meet certain conditions for the sale to go through. If a contingency doesn’t happen, the contract might become null and void.

Advantages of Real Estate Contingencies

Real estate contingencies give buyers an opportunity to exercise control over their offers. They make a great negotiation tactic. For example, the buyer might require certain fixes to take place within the home. The seller may counter with a credit that reduces the price of the home instead.

Real estate contingencies give the buyer some bargaining power in the negotiation process before the close.

Examples of Contingencies

The main types of contingencies in real estate are the inspection contingency, the appraisal contingency and the loan contingency.

When a buyer and seller sign a contract with contingencies, which is the norm in real estate, both parties can protect themselves against certain risks. For example, the buyer’s funding might fall through, leaving the seller in a lurch. With a loan contingency, the seller can protect themselves by putting a deadline on the delivery of the purchase price.

Here’s another example: A seller might not be able to provide proof of clear title, making the venture risky at best for the buyer. Including a contingency based on free title can protect the buyer from entering into a risky or invalid sale.

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