A contingency is something that must happen for something else to happen. In real estate, a common example is a mortgage loan contingency which means the buyer must be approved for loan or they can not fulfill the terms of the purchase agreement. If the buyer doesn’t get the loan, the contingency is never met, the contract is cancelled, and the buyer receives their deposit back.

Another common example is an inspection contingency which means that the buyer will get a 3rd party inspection of the property. The property must satisfactorily pass that inspection before the buyer will fully commit to the purchase. Ultimately the buyer could feel that too much work needs to be done to justify their offer price.

Another common example is a pest inspection contingency which is mostly concerned with termites. The property has to pass as Termite Free or the problem must be corrected before moving forward with the sale.

A contingency can be written for anything, but in most situations, a seller is not going to accept an offer with too many contingencies–especially one where a seller has multiple offers.

Contingencies are designed to protect the buyer or seller. They are usually put into an offer to purchase or a counter-offer by the seller. For example, the seller could write a contingency that they will sell you the property if you agree to pay back taxes, HOA dues, or any cost that is usually associated with the seller.

Contingencies are removed from a contract when the terms are met. The person who asked for it issues a contingency release.

Including the proper contingencies could potentially save you from making a costly mistake.

➡️ Chapter 29: Investing In Fixer Uppers