Contract Conditions
Real Estate Contract Contingencies Explained
Contingencies are conditions that must be met for a contract to remain binding. The exam tests financing, inspection, appraisal, and sale-of-home contingencies — here's the full breakdown.
What Is a Contingency?
A contingency is a condition written into a purchase contract that must be satisfied before the transaction can close. If the condition is not met, the party protected by the contingency can withdraw from the contract without losing their earnest money deposit.
Contingencies protect buyers and sometimes sellers from being locked into an unfavorable transaction. Most contingencies have a specific deadline — if not resolved by that date, the contract may terminate automatically.
Common Real Estate Contingencies
Financing Contingency
Allows the buyer to cancel if they cannot obtain a mortgage commitment at specified terms by a set date. Also called a 'mortgage contingency' or 'loan contingency.'
Inspection Contingency
Gives the buyer the right to have the property professionally inspected. If defects are found, the buyer may request repairs, renegotiate price, or cancel.
Appraisal Contingency
Protects the buyer if the property appraises below the purchase price. The buyer can cancel, renegotiate, or make up the difference in cash.
Sale of Prior Home
Buyer's obligation is contingent on selling their current home. Sellers often accept this with a kick-out clause — allowing them to continue marketing and give the buyer 72-hour notice to remove the contingency.
Contingency FAQ for the Exam
What happens when a contingency deadline passes without resolution?
It depends on contract language. The contingency may auto-expire (making the contract firm), or either party may have the right to cancel. Exam questions test whether the buyer or seller has the right to act.
What is a kick-out clause?
A kick-out clause allows the seller to continue marketing the property while under contract with a sale-of-prior-home contingency. If a new offer comes in, the seller can give the original buyer a set period (e.g., 72 hours) to waive the contingency or the contract terminates.
Can a seller include contingencies?
Yes. Sellers can include contingencies too — for example, making the sale contingent on finding a replacement home (a 'home of choice' contingency). These are less common but appear on some exams.