In real estate, contingencies are conditions included in a purchase agreement that must be met for the transaction to move forward. These clauses protect both buyers and sellers by allowing either party to withdraw from the contract without penalty if specific terms aren’t satisfied.
Although not required, contingencies are standard in most real estate contracts – and some are especially important depending on where you’re buying. For instance, when buying in areas prone to wildfires, like Los Angeles, including a home insurance contingency can be a smart move to ensure the property is insurable.
This Redfin article explains how contingencies work, which ones to expect, and how they help you avoid costly setbacks during the homebuying process.
In this article:
1. Home inspection contingency
This is one of the most frequently used contingencies in real estate. This clause gives the buyer the right to have the home professionally inspected, typically 7 to 10 days after the offer is accepted. And if the inspection reveals significant issues such as foundation damage, roof problems, or mold, the buyer can:
- Request repairs or credits from the seller
- Renegotiate the purchase price or contract terms
- Cancel the contract and retain their earnest money deposit
➤ The home inspection contingency helps buyers avoid unexpected repair costs after closing.
2. Appraisal contingency
When a buyer finances a home, lenders require an appraisal to confirm the property’s value supports the loan amount. If the appraisal comes in lower than the agreed purchase price, the buyer can:
- Cover the difference in cash
- Renegotiate the price
- Exit the contract
Renegotiation is common in appraisal contingencies, giving both parties a chance to adjust the price or terms to reflect the home’s appraised value.
➤ This real estate contingency protects buyers from overpaying and lenders from financing more than the home is worth.
3. Financing (mortgage) contingency
A financing contingency, also known as a mortgage contingency, allows the buyer to back out of the sale if they’re unable to secure mortgage approval, usually 21 to 30 days. Reasons for denial can include credit issues, job changes, or changes in loan terms.
If financing falls through, buyers can withdraw and get their earnest money back. However, many buyers work with lenders to explore alternative financing options before canceling.
➤ This contingency protects buyers from being contractually obligated to purchase a home they can no longer afford to finance.
4. Title contingency
A title contingency gives the buyer the right to review the results of a title search and cancel the contract if any issues related to ownership or property rights are uncovered. The title company typically conducts this search shortly after the contract is signed.
Common title issues include:
- Unpaid property taxes or contractor liens
- Boundary disputes or easements
- Undisclosed heirs or prior claims of ownership
- Errors in public records or deeds
If the search reveals a problem, the seller is generally given a window to resolve it, such as clearing a lien or correcting a legal error. If they can’t deliver a clear title by the closing date, the buyer may back out of the deal and recover their earnest money.
➤ This contingency protects buyers from inheriting legal, financial, or ownership complications tied to the property.
5. Home sale contingency
A home sale contingency makes the purchase dependent on the buyer selling their current home within a specified period. If the buyer cannot sell their home in time, they can cancel the contract without losing their earnest money.
This contingency is often necessary for buyers relying on proceeds from their existing home. However, sellers may find offers with this contingency less appealing because it introduces uncertainty and possible delays.
Contracts that include this clause often specify key details, such as whether the buyer’s current home is already under contract and how much time is allowed for the sale to close. Sellers may counter with a kick-out clause, which permits them to continue marketing the home and accept backup offers.
➤ This contingency protects buyers from carrying two mortgages, ensuring they aren’t locked into a new purchase until their current home sells.
6. Home insurance contingency
A home insurance contingency allows the buyer to confirm they can obtain adequate homeowners insurance for the property at a reasonable cost. If the buyer is unable to secure coverage – due to factors like location, condition, or risk exposure – they can cancel the contract without penalty.
This type of contingency in real estate is especially important in areas prone to natural disasters, such as floods, wildfires, or hurricanes, where insurance may be limited or prohibitively expensive.
➤ Insurance contingencies protect the buyer from being locked into a purchase they cannot insure or afford to insure.
7. Kick-out clause/contingency
A kick-out clause is a contingency used by sellers when accepting an offer that includes a home sale contingency. It allows the seller to continue marketing their property and accept backup offers even after entering into a contract with a buyer.
If another buyer submits a stronger offer, the seller can notify the original buyer – who typically has 24 to 72 hours to either:
- Remove their home sale contingency and proceed with the purchase, or
- Walk away and allow the seller to accept the new offer
This clause must be clearly outlined in the purchase agreement, including the required notice period and response timeframe.
➤ The kick-out clause protects the seller from being locked into a lengthy contract with a buyer who may not be able to close, giving them a path to pursue better-qualified offers if they arise.
FAQs about contingencies in real estate
What does contingent mean in real estate?
A contingency is a contractual condition that must be fulfilled for a real estate transaction to proceed. If the condition is not met, the contract can typically be canceled without penalty.
What contingencies should I include when buying a house?
Which contingencies you should include will ultimately depend on factors such as the home’s condition, location, and your financial situation. That said, most buyers benefit from including inspection, appraisal, and financing contingencies, especially if they’re receiving a mortgage loan.
In certain areas, additional contingencies may be especially important. For example, if you’re buying a home in St. George, UT where wildfires are a risk, or in coastal Florida cities like Fort Lauderdale or Naples that are prone to hurricanes and flooding, it can be wise to include a home insurance contingency.
Are contingencies required in a real estate contract?
No, but they’re common. Buyers often include them to protect against risks like failed financing or major home defects. Waiving contingencies can strengthen an offer but increases the buyer’s exposure to risk.
What’s the difference between pending and contingent?
A contingent listing is still under contract but waiting for specific conditions to be met. A pending listing means all contingencies have been cleared and the sale is in its final stages before closing.
Is it risky to waive contingencies?
Yes. Waiving contingencies, like the inspection, can make an offer more competitive, but it increases the buyer’s financial and legal risk. If problems arise, the buyer may have no contractual way out.
Can you remove contingencies after an offer is accepted?
Yes, contingencies can be removed or waived after the offer is accepted – either voluntarily by the buyer or after certain deadlines pass. In some cases, buyers may be required to formally remove them in writing to keep the contract moving forward.
Can a seller accept another offer while a property is contingent?
In most cases, no, unless the contract includes a kick-out clause. Without one, the seller is typically obligated to honor the original agreement while the contingencies are being resolved.
