Contingency
A condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Full Definition
A contingency is a provision in a real estate purchase contract that makes the transaction conditional on the occurrence (or non-occurrence) of a specified event. Common contingencies include: financing contingency (buyer must obtain a mortgage loan), inspection contingency (buyer must be satisfied with a property inspection), appraisal contingency (property must appraise at or above the purchase price), and sale contingency (buyer's current home must sell first). If a contingency cannot be satisfied, the buyer typically has the right to cancel the contract and receive their earnest money back without penalty. Waiving contingencies — common in competitive markets — increases buyer risk.
Real-World Example
A purchase contract includes a financing contingency requiring the buyer to obtain loan approval within 14 days. If the buyer is denied the loan, they can cancel the contract and recover their earnest money.
How Contingency Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Know the most common contingencies and that a buyer who cancels under a valid contingency gets their earnest money back. Without a valid contingency, the seller may keep the deposit.
Related Terms
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