What Contingencies Really Mean in a Purchase Agreement

When buyers review a purchase agreement, contingencies are often the most misunderstood part of the contract. They sound technical, but contingencies are simply conditions that must be met for the sale to move forward.

Understanding them helps buyers protect themselves and sellers know what to expect.

What Is a Contingency?

A contingency is a clause that allows a buyer or seller to proceed, renegotiate, or exit the contract if certain conditions aren’t met within a set timeframe.

They are designed to manage risk, not delay the process.

Common Buyer Contingencies Explained

1. Inspection Contingency

This allows buyers to:

• Conduct a home inspection

• Request repairs or credits

• Renegotiate or cancel if major issues are found

This is one of the most important buyer protections.

2. Appraisal Contingency

If the home doesn’t appraise at the contract price:

• The buyer may renegotiate

• Bring additional cash

• Or walk away if terms can’t be met

This protects buyers from overpaying beyond lender-supported value.

3. Financing Contingency

This ensures the buyer can secure a loan.

If financing falls through due to lender issues:

• The buyer may exit the contract without penalty

• The earnest money is typically protected

4. Sale of Buyer’s Home Contingency

Some buyers need to sell their current home first.

This contingency:

• Allows time to sell

• Protects buyers from owning two homes

• May reduce competitiveness in strong markets

Seller Considerations

From a seller’s perspective, contingencies affect:

• Timeline certainty

• Risk of the deal falling through

• Negotiation leverage

Fewer contingencies often mean a stronger offer, but not always a better one.

Contingency Timelines Matter

Each contingency has a deadline.

Missing deadlines can:

• Waive protections

• Force the contract forward

• Change negotiation rights

Careful tracking is essential.

Waiving Contingencies: Pros and Cons

Waiving contingencies can strengthen an offer, but it increases risk.

Buyers should:

• Understand the consequences

• Be confident in finances and condition

• Seek professional guidance

Final Thought

Contingencies aren’t obstacles. They’re safeguards that help transactions move forward with clarity and confidence. Understanding what they mean allows buyers and sellers to make informed, strategic decisions.