When a buyer makes an offer to purchase a house, she or he may include one or more contingency clauses. These describe circumstances that must occur for the signed agreement to become a binding contract.
If the contingencies do not occur, the parties can back out of the contract.
Common contingency clauses
Many types of contingencies are common in real estate transactions:
- A financing contingency states that if the buyer is not approved by the lender on certain terms by a certain date, he or she can cancel the contract
- Buyers can make the offer conditional on obtaining a satisfactory home inspection. They may negotiate repairs or a lower price as a result of the report.
- A sale can be contingent on the house appraising at the contract price or higher. If the appraisal is low, the seller may have the option of lowering the selling price accordingly.
- A title search contingency lets buyers back out if they cannot obtain a satisfactory title report
More contingency clauses
Buyers can include any condition the sellers will accept, such as requiring them to finance the sale or paint the house. Other clauses include:
- A requirement that the buyer must be able to sell his or her current home within a certain amount of time
- A kick-out clause stating that if another buyer appears, the buyer must remove the contingency within a certain amount of time or the contract becomes null and void
When a real estate listing shows as “contingent,” it means that the seller and buyer have a contract but that some contingencies remain unmet. If those are successfully removed, the listing will show as “pending.”