Q&A / Buying a home
What are contingencies in a home purchase?
Short answer
A contingency is a condition in your contract that says, “I’ll buy this house if…” If that condition isn’t met before its deadline, you can usually back out and keep your earnest money.
How does a contingency work?
Every contingency has two parts: a condition and a deadline. The condition is the “if,” like “if the inspection doesn’t turn up major problems.” The deadline is how long you have to act on it.
Think of each one as an exit door with a clock on it. Before the clock runs out, the door is open. After that, it locks.
What are the three big contingencies?
Inspection contingency
This gives you time to have the house inspected. If the inspector finds problems, you can ask the seller to fix them, ask for a credit or a lower price, or walk away.
Appraisal contingency
This protects you if the house appraises for less than your offer. Instead of being stuck covering the gap in cash, you can renegotiate or back out.
Financing contingency
This protects you if your loan falls through, even after you were pre-approved. If the lender says no, you can cancel without losing your deposit.
Are there other contingencies?
Yes. Two you’ll hear about often:
- Home sale contingency. You need to sell your current house before you can buy the new one. It protects you, but sellers often see it as risky, so it can make your offer weaker.
- Title contingency. The seller has to be able to hand over clean ownership, with no surprise liens or ownership disputes.
Should I waive contingencies to win a house?
Waiving a contingency makes your offer stronger and riskier at the same time. Here’s how it can go wrong:
You waive the appraisal contingency to beat another offer. The house appraises $20,000 low. Now you either cover that $20,000 in cash or walk away and lose your earnest money.
A good rule: only give up a protection if you could live with the worst case. There are also middle-ground options, like shortening a deadline, agreeing to cover a set amount of any appraisal gap, or keeping your inspection but agreeing not to ask for small repairs.
What if I’m the seller?
From the seller’s side, fewer contingencies and shorter deadlines mean more certainty that the sale will close. When you’re comparing offers, the highest price isn’t always the best offer. The one most likely to make it to closing often is.
What I tell my clients
Know where every exit door is and when it locks. Most of the expensive surprises I’ve seen came from a missed deadline, not from the problem itself.
Words you’ll hear
- Contingency
- A condition in your contract that lets you back out if something specific doesn’t happen.
- Waive
- To give up a right or protection in the contract, usually to make an offer more attractive.
- Lien
- A legal claim against a property for an unpaid debt, like a contractor bill or back taxes.
Have a question that isn’t here?
Send it to me. I’ll give you a straight answer, and if other people are wondering the same thing, it might become the next page in this Q&A.
This is general information to help you understand the process. It isn’t legal or financial advice. Your contract, your lender and your agent have the final word on your situation.