Common Real Estate Contingencies And Their Meaning

Getting ready to buy your dream home? Congratulations! Along with the excitement, it’s important to understand the details of the purchase agreement. One section you’ll want to pay close attention to is the contingency clause.

Contingencies aren’t just there for buyers; they also protect sellers. These clauses act as a safeguard, outlining what happens if certain conditions aren’t met and giving both parties the right to walk away without penalty.

In this blog, we’ll break down what contingency clauses are, how they differ from contingent listings, and the most common contingencies you’ll come across in real estate contracts.

What Are Contingencies in Real Estate?

A contingency clause in a purchase agreement outlines the specific terms and conditions that must be fulfilled within a set period for the contract to remain valid. The agreement is signed by both buyer & seller, confirming that they’ve read and accepted these terms. Essentially, contingencies act as a shield, giving either party the right to cancel the deal if the agreed-upon conditions are not met.

Contingency Clause vs. Contingent Listing

Contingency clauses are often confused with contingent listings, but they aren’t the same. A contingent listing refers to a home that’s still on the market but already has an accepted offer. The sale isn’t final yet because certain contingencies in the contract must still be satisfied before the deal can close.

6 Common Contingencies in Real Estate

Some of the most common contingency clauses included in real estate contracts are:

Mortgage Contingency

This clause sets the timeframe within which the buyer must secure financing for the home. If the loan isn’t approved within that period, the deal can be called off without penalties, allowing the seller to seek other buyers.

Mortgage contingencies are especially important for buyers. In fact, in many U.S. states, they are a standard requirement. This clause protects the buyer if their mortgage falls through. That’s why it’s smart to get pre-approved before house hunting. (Here you can link to your pre-approval checklist blog.)

If financing is ultimately denied, the buyer can typically request a refund of their security deposit.

Title Contingency

This allows the buyer to review the property’s title for issues. If problems such as liens or ownership disputes are found, the seller must resolve them before the sale can proceed. A clear title ensures you’re buying from the right owner and the property is free of legal defects.

Home Inspection Contingency

This clause gives the buyer a defined timeframe to have the property professionally inspected. Inspections can find issues such as structural damage, roof leaks, plumbing or electrical problems, or pest infestations. If significant issues are uncovered and the seller refuses to address them, the buyer has the right to terminate the contract without penalty.

Sale of a Prior Home Contingency

For buyers who need the proceeds from selling their current home to purchase a new one, this contingency provides protection. If the existing home doesn’t sell within the agreed timeframe, the buyer can back out of the contract without penalties.

Appraisal Contingency

This clause states that if the property does not appraise for the agreed sale price, the contract can be voided. Since lenders won’t finance a home for more than its appraised value, this contingency protects the buyer from overpaying. In such cases, the seller may either agree to lower the cost or risk losing the sale.

Homeowners Insurance Contingency

This requires the buyer to obtain homeowners' insurance before the sale is finalized. If the buyer cannot secure coverage, either party may withdraw from the contract. Insurance protects both the buyer & the lender, making this contingency a vital step in the process.

Tip of Caution: Don’t Overdo It

Contingencies are powerful safeguards, but adding too many can work against you. In a seller’s market where demand is high and sellers often receive multiple offers, loading your contract with too many clauses may make your offer less attractive. Sellers usually prefer buyers who keep things simple, with fewer special conditions to slow down the process. The key is balance: include the essentials that protect you, but avoid overcomplicating the deal.

What Happens if a Contingency Isn’t Met?

If a contingency isn’t met, either the buyer or the seller can cancel the contract, making it null and void. Once that happens, both parties are free to move on.

For example, if the home appraisal comes in lower than expected, the buyer’s financing could be at risk. At that point, the parties may choose to cancel the deal, renegotiate the purchase price, or dispute the appraisal. Similarly, if a buyer’s mortgage is denied, they can request to end the contract or ask for more time to secure alternate financing.

Contingencies and Earnest Money

When you make an offer, you’ll typically put down earnest money (also called a good faith deposit), which is put in an escrow account by a neutral third party. If you back out of the contract without a valid contingency, the seller may keep this deposit.

However, if you’ve included protective contingencies that legally allow you to walk away, such as a financing or inspection clause, you’re usually entitled to get your earnest money back. Consider contingencies as your emergency exit in the buying process.

Find a Trusted Agent

Contingencies are essential safeguards, but deciding which ones to include requires strategy. This is where a trusted professional makes all the difference. A seasoned real estate agent—or an attorney—can help you strike the right balance, protect your interests, and guide you through the fine print. At Total Mortgage, our experts ensure you move toward your dream home with confidence and clarity.