Understanding Contingencies

Purchase contract contingencies establish explicit contractual conditions that must be satisfied by designated deadlines before a transaction closes. Contingencies protect your capital, granting unconditional exit rights and earnest-money recovery if property condition, title, appraisal, or financing fail to meet agreed underwriting criteria:

Inspection Contingency

This allows you to have the home inspected and, depending on the findings, renegotiate or withdraw your offer without penalty.

Financing Contingency

This ensures that if you’re unable to secure financing by a certain date, you can cancel the contract.

Appraisal Contingency

This ensures that the home must be appraised at or above the sale price. If the appraisal comes in lower, you have the option to renegotiate or withdraw.

The one that protects the most money is the loan (or financing) contingency. This gives you the right to back out if you can’t secure financing within a set number of days. Sellers, on the other hand, favor buyers who can close the deal with certainty. Once the purchase contract is signed, sellers want assurance that the buyer can complete the purchase as planned. However, a loan contingency can delay the closing process and introduce uncertainty, since securing a loan takes time.