What Does It Mean When a House Sale Is Contingent?

A key element in many real estate transactions is the inclusion of contingencies, which are conditions that must be satisfied for the sale to proceed. These contractual clauses define the terms under which both parties agree to move forward, providing a structured framework for the transaction. Understanding these conditions is important for anyone navigating the housing market.

Understanding What a Contingency Is

A contingency in a house sale contract specifies a condition or action that must be met by a certain deadline for the agreement to remain valid. It functions as a protective measure for both the buyer and the seller. If a contingency is not satisfied within the agreed-upon timeframe, the protected party typically has the option to terminate the contract without financial penalty, often retaining their earnest money deposit. This ensures neither party is forced to proceed with a transaction under undesirable circumstances.

Contingencies introduce uncertainty into the sale, as the contract’s binding nature depends on these conditions. For instance, a buyer might include a clause stating the purchase is dependent on securing a mortgage. A seller might accept an offer contingent on the buyer’s existing home selling. The specific terms and timelines for these conditions are negotiated and documented within the purchase agreement.

Common Contingency Types

Several types of contingencies commonly appear in real estate contracts, each designed to address specific aspects of a home sale. These clauses allow buyers and sellers to protect their interests during the transaction. The most frequently encountered contingencies relate to the physical condition of the property, its valuation, and the buyer’s ability to secure financing.

One prevalent type is the inspection contingency, which grants the buyer a specified period, typically 7 to 14 days, to have the home professionally inspected. A qualified home inspector examines the property for defects or safety concerns. If the inspection reveals issues, the buyer can negotiate with the seller for repairs, a price reduction, or withdraw from the contract if an agreement cannot be reached.

An appraisal contingency is another common clause, particularly when a buyer is obtaining a mortgage. This condition ensures that the home’s appraised value, determined by a licensed appraiser, meets or exceeds the agreed-upon purchase price. Lenders will only finance up to the appraised value. If the appraisal comes in lower, this contingency allows the buyer to renegotiate the price, cover the difference in cash, or terminate the contract without losing their earnest money deposit. The timeframe for an appraisal contingency is often 17 to 20 days.

A financing, or loan, contingency protects the buyer if they are unable to secure the necessary mortgage. This clause provides a window, often between 30 and 60 days, for the buyer to obtain loan approval. If the buyer’s loan application is denied within this period, they can cancel the contract and receive their earnest money back. This protects buyers from being legally bound to a purchase they cannot afford.

Less common, but still significant, is the sale of current home contingency. This allows a buyer to make their offer contingent on the successful sale of their existing property within a specified timeframe, which can range from 30 to 90 days. Sellers are sometimes hesitant to accept this contingency because it introduces additional uncertainty and can extend the closing timeline. Other contingencies may include a title contingency, ensuring clear ownership, or an attorney review contingency, allowing legal counsel to review and approve the contract terms.

How Contingencies Impact a Sale

Contingencies introduce specific phases into the home sale process, dictating how the transaction progresses toward closing. Each contingency comes with a defined timeline, and actions taken within that period directly influence the contract’s status. When a contingency is met, it signifies that the condition has been fulfilled, moving the sale closer to completion. For example, if a home inspection is satisfactory, or if negotiated repairs are agreed upon, that specific contingency is cleared.

Conversely, if a contingency is not met within the stipulated timeframe, it can lead to various outcomes. For instance, if an inspection reveals substantial structural issues and the buyer and seller cannot agree on repairs or a price adjustment, the buyer may choose to terminate the contract. Similarly, if a home appraises for less than the purchase price and the parties cannot resolve the appraisal gap, the buyer may withdraw. In such cases, the contract typically allows the buyer to exit the deal without forfeiting their earnest money deposit, which is often 1% to 3% of the home’s value.

If a buyer fails to act within the set period—for example, by not completing an inspection or securing financing by the deadline—they risk losing the protection the contingency offers. This could mean forfeiting their earnest money if they later decide to back out, or being obligated to proceed with a purchase despite unresolved issues. Sellers also monitor these deadlines, as an expired contingency can strengthen their position or allow them to pursue other offers.

Waiving and Removing Contingencies

The conclusion of a contingency’s role in a real estate contract involves either waiving or removing it. Removing a contingency means formally notifying the other party that the condition has been satisfied. For instance, once a buyer receives a satisfactory home inspection report, they typically remove the inspection contingency. This step is often documented through specific forms, signaling that the buyer is ready to proceed without that protection.

Waiving a contingency, on the other hand, means voluntarily giving up the protection it offers, even if the condition has not been fully met or assessed. For example, a buyer might waive an inspection contingency to make their offer more attractive in a competitive market. While this can appeal to sellers by streamlining the transaction, it places the full financial risk of any undisclosed or unforeseen property defects squarely on the buyer. If significant issues are discovered later, the buyer is responsible for the costs.

For the buyer, removing contingencies makes the contract more binding and moves them closer to the closing table. Waiving them means accepting the property “as is” for that specific condition, potentially without full knowledge of its state. For the seller, the removal of contingencies provides greater certainty that the sale will close, reducing their risk and allowing them to plan for their next steps.