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Buying & closing

Contingency

Also called contract contingency, contingency clause

In short

A contingency is a condition in a purchase contract that must be met for the sale to go through. If it isn't met by its deadline, the buyer can usually cancel and keep their earnest money.

Common types
Inspection, appraisal, financing
Typical window
7 to 30 days each
Protects
Mostly the buyer
On REO and auctions
Often limited or none

Common contingencies

  • Inspection: lets you cancel or renegotiate after a home inspection.
  • Appraisal: protects you if the appraisal comes in below the price.
  • Financing: lets you cancel if your mortgage is denied.
  • Title: lets you cancel if the title search finds problems that can't be cleared.
  • Home sale: makes the purchase depend on selling your current home.

Deadlines and removal

Each contingency has a deadline. Depending on the contract, you either remove it in writing or it is treated as satisfied once the deadline passes. After that, cancelling for that reason can cost you your earnest money.

Contingencies on distressed sales

Bank-owned sellers usually accept inspection and financing contingencies but sell as-is, meaning they won't make repairs. Foreclosure auctions typically allow no contingencies at all: no inspection, no financing, often no interior access. That is a large part of the risk and the discount.

Example

Using an appraisal contingency

A buyer agrees to pay $250,000 with a 20% down payment and an appraisal contingency. The appraisal comes back at $235,000. Because the lender will only lend against $235,000, the buyer uses the contingency to ask the seller to lower the price. The seller agrees to $240,000 and the buyer covers the remaining $5,000 gap in cash. Without the contingency, the buyer would have had to find the full $15,000 gap or risk losing the deposit.

Contingency vs. As-Is Sale

Contingency

A contingency is a condition in a purchase contract that must be met for the sale to go through. If it isn't met by its deadline, the buyer can usually cancel and keep their earnest money.

As-Is Sale

An as-is sale means the seller will not make repairs or offer credits for the property's condition. The buyer accepts the home in its current state, though inspection rights and required disclosures may still apply.

The differenceAn as-is clause means the seller won't make repairs; a contingency gives the buyer a right to cancel. An as-is contract can still include an inspection contingency.

Frequently Asked Questions

Related terms

Earnest MoneyBuying & closingEarnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.AppraisalBuying & closingAn appraisal is a licensed appraiser's independent estimate of a property's market value. Lenders require one to make sure the home is worth at least the amount being borrowed.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.EscrowBuying & closingEscrow is an arrangement where a neutral third party holds money or documents until the conditions of a deal are met. The term also refers to the account a lender uses to pay a borrower's property taxes and insurance.Title SearchTitle & legalA title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.Short SaleForeclosure processA short sale is the sale of a home for less than the amount owed on its mortgage, with the lender's approval. The lender agrees to accept the reduced proceeds to avoid a foreclosure.Closing CostsBuying & closingClosing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.

Learn more in the knowledge base

How to Make an Offer on a House and NegotiateGuide · 8 min readAn offer is more than a price. The deposit, contingencies, timeline and requests you include all shape whether the seller says yes and how protected you are afterwards. This guide explains each term and how negotiation usually unfolds.Inspection, Appraisal and Underwriting: Clearing Contingencies Before ClosingGuide · 7 min readOnce your offer is accepted, a short window opens to check the home's condition, its value and your loan. This guide explains how the inspection, appraisal, underwriting and title review run side by side, and how to clear each contingency before its deadline.Inspecting and Negotiating on a Bank-Owned (REO) PropertyGuide · 7 min readBank-owned homes are sold as-is, often after sitting vacant, so a thorough inspection is the most important step in the purchase. This guide covers how to get the home ready to inspect, what to look for, what banks will and will not negotiate and how to handle appraisal and title issues before closing.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.