Quick Answer
A contingency is a condition written into a purchase agreement that must be met for the sale to proceed. If it isn't satisfied within the stated deadline, the buyer can usually cancel and get their earnest money back. The four most common are inspection, financing, appraisal, and sale-of-home contingencies.
- Purpose
- Lets a buyer exit without losing their deposit
- Inspection
- Cancel if the inspection reveals problems
- Financing
- Cancel if your loan is denied
- Appraisal
- Cancel if the home appraises below the price
- Sale of home
- Cancel if your current home doesn't sell
Contingencies are the buyer's safety net. Each one is a specific escape hatch with a specific deadline, and understanding them is the difference between a deposit you can recover and one you can't.
The Four Main Contingencies
Inspection contingency. Gives you a defined window to have the home professionally inspected and to negotiate repairs, request a credit, or cancel. This is the one buyers use most.
Financing contingency. Protects you if your loan isn't ultimately approved. Even with a pre-approval, final underwriting can surface problems — which is why you should not change jobs, open new credit, or make large deposits between contract and closing.
Appraisal contingency. Lets you renegotiate or cancel if the home appraises below the contract price. See appraisal gap.
Sale-of-home contingency. Makes your purchase conditional on selling your current home. It's the weakest-looking contingency to a seller, because it makes your offer depend on a transaction they can't see.
Deadlines Are Everything
A contingency only protects you inside its window. Miss the inspection deadline and that protection generally evaporates, even if you later find a serious problem. Calendar every date in your contract the day it's signed.
Should You Waive Contingencies?
In competitive situations buyers sometimes waive contingencies to strengthen an offer. It works — sellers love clean offers — but every one you remove converts a refundable deposit into money genuinely at risk.
Waiving the inspection means accepting the house's condition sight-unseen by a professional. Waiving the appraisal contingency means committing to cover a shortfall in cash if the appraisal comes in low. Neither is automatically wrong; both should be deliberate decisions with a number attached, not reflexes.
A middle path often works better: shorten the inspection window rather than waiving it, or cap your appraisal-gap exposure at a specific dollar amount rather than removing the contingency entirely.
What Contingencies Mean for Sellers
If you're selling, contingencies are the main reason the highest offer isn't automatically the best. An offer $5,000 higher with a sale-of-home contingency may be considerably riskier than a slightly lower one from a buyer with none. Our selling guide covers how to weigh them.
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Frequently Asked Questions — Contingency
What are the most common contingencies in a home purchase?
Inspection, financing, appraisal, and sale-of-home. The inspection contingency lets you cancel or renegotiate based on the home's condition, financing protects you if your loan is denied, appraisal protects you if the home values below the contract price, and sale-of-home makes your purchase conditional on selling your current house.
Is it a bad idea to waive contingencies?
It increases your risk, and it should always be a deliberate decision. Waiving the inspection means accepting the home's condition without professional review; waiving the appraisal contingency means committing to cover any shortfall in cash. A middle path often works better, such as shortening the inspection window or capping your appraisal-gap exposure at a set amount.
What happens if a contingency deadline passes?
The protection generally goes away. Contingencies only apply inside their stated window, so if the inspection deadline passes you may no longer be able to cancel on that basis and keep your earnest money. Calendar every contract date as soon as the agreement is signed.