Real Estate Contingency
A condition in a real estate purchase contract that must be satisfied for the transaction to proceed, protecting the buyer's right to exit without penalty.
What is Real Estate Contingency?
A real estate contingency is a contractual clause that makes the purchase agreement conditional upon the occurrence of a specified event or the satisfaction of a stated condition within a defined time period. If the condition is not met, the buyer may withdraw from the contract and typically recover their earnest money deposit. The three most common contingencies are: (1) the financing contingency (mortgage contingency), which protects the buyer if their loan is denied; (2) the inspection contingency (due diligence contingency), which allows the buyer to exit or renegotiate after a home inspection; and (3) the appraisal contingency, which allows the buyer to exit if the property appraises below the purchase price. In competitive seller's markets, buyers sometimes waive contingencies to make their offers more attractive—accepting significant risk in exchange for a competitive edge. Contingency periods typically run 7–21 days depending on the type and local market practice.
Example
In the hot 2021–2022 housing market, many buyers in major US metros waived inspection and appraisal contingencies to compete with all-cash offers. A buyer who waived the appraisal contingency on a $600,000 offer faced a $560,000 appraisal—a $40,000 gap they had to cover out of pocket or lose the deal. By contrast, buyers with appraisal contingencies intact could renegotiate to the appraised value or exit with their earnest money returned.
Source: Consumer Financial Protection Bureau — Buying a House