Business & Real Estate

What does 'contingency' mean in a real estate contract?

Q: What is a contingency?

A: A contingency is a provision included in a sales contract stating that certain events must occur or certain conditions must be met before the contract can move forward.

Q: Can sellers have contingencies?

A: Yes, either buyers or sellers can have contingencies written into a contract.

Q: What are some examples of contingencies?

A: For buyers, they usually involve:

• Property condition. The buyer wants to inspect or investigate some aspect of the property.

• Finance/appraisal. This would ensure the buyer can secure financing to purchase the house and/or to obtain an appraisal.

• Insurance. Such a contingency would confirm that insurance is available for the property. With floods and fires, some houses have a hard time getting insurance, and lenders typically will not lend on an uninsured house.

For sellers, a contingency might involve their being able to find another house to move to.

Q: What is a noncontingent offer?

A: A noncontingent offer essentially means that once ratified (signed by buyers and sellers), neither party (usually it’s the buyer) can back out of the contract. However, there are certain exceptions, and if you ever find yourself in this kind of a situation, you should contact a real estate attorney for legal advice.

Contingent offers mean the contract contains a contingency clause that is waiting to be completed (for example, a buyer is waiting for lender approval or a home inspection report). Should the contingency not be successfully fulfilled in the time frame noted in the contract, the party with the contingency has the right to cancel the contract and get their deposit back (or renegotiate).

Q: Why should I get all the inspections done on my house before I go to market?

A: One answer is to limit the number of contingencies buyers may want to include in their offer. For example, if you have not provided a home or pest inspection to a potential buyer in advance, the buyer will likely include a contingency to be able to obtain and review those reports. This provides them with an opportunity to discover undisclosed facts about the house that could be used to negotiate the price down prior to removing the contingency.

Owen Halliday is a realtor who manages the Sereno Group office in Los Altos. Email questions, comments and potential column topics to This email address is being protected from spambots. You need JavaScript enabled to view it..


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