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The real estate world is similar to that of real life in terms of the fact that it’s filled with a lot of what if’s. For instance, what if a home inspection uncovers a lot of major issues? What if your financing suddenly falls through? These are issues that can be handled through things called contingency contracts when you go through the process of purchasing a home.

Generally defined, contingencies are clauses in a contract which provide you with a way out in the event that something happens due to unforeseen circumstances. A contingency essentially keeps you from losing money and offers you an amount of leverage in order to get the seller to help you deal with any issues that may arise. They aren’t exactly things that will get you off scot-free, but they’re about as close as you will get, especially since they work to your advantage. This is why many sellers are never very fond of them.

Primary Contingencies

*Disclosure: This will involve you accepting the seller’s disclosure form. Depending on the area in which you live, what will need to actually be disclosed can vary; however, once the seller accepts your offer, they will only have a short amount of time to provide you with a form that discloses any and all material facts regarding the property itself. There are many real estate companies that require sellers to do this in order to protect themselves from potential lawsuits, even though this kind of move is not actually required by law. However, if the seller either does not disclose this information within the necessary amount of time or if the disclosure itself makes you want to back out, you are well within your rights to take back your offer. Furthermore, even though you may receive a clean disclosure form, this does not mean you do not have to undergo a basic inspection. A seller can always suspect something may be wrong, but still may not actually know it. Additionally, they may be purposely choosing to not look for something to be wrong in the event that they actually do find something that they would otherwise need to legally tell you about.


This will provide you with the full right to have complete access to the home in order to conduct a proper inspection within a specified amount of time. Once the inspection is completed, you can either sign it off and move on or if there are issues that have been discovered, you can ask the seller to attend to them and give you credit for them. The seller can then choose to agree to everything or make a counteroffer if the list of what needs to be fixed is too long. This will typically be the case if they want to fix some, but not all of, the issues. On the other hand, if you come across something truly horrendous during the inspection, you may wish to cancel the deal entirely. You will definitely be out of the money that you paid the inspector, but you will be entitled to receive your earnest money back.

*Loan Approval/Home Appraisal:

Even though you may have been pre-approved for a loan, this doesn’t mean that your bank will be automatically ready to wire the money to you. First, they will want a professional appraiser to walk through the home to make note about its overall condition. A written report will then be made, including what its appraised value actually is. If that amount is at or above the sales price, then all will be well. If not, then there will most definitely be a problem; however, you will have options available to you. Firstly, if the price is in line with CMA numbers, you can request that the mortgage lender conduct another appraisal or override the initial appraisal value, which will likely result in you being issued the amount that you originally requested. If this doesn’t work, an appraisal contingency clause will enable you to renegotiate the purchase price so that it will match the appraisal. If the seller refuses, you will have only two other options left: add the difference between the sales price and appraisal to your down payment or cancel the contract, walk away, and get back your deposit.

Tier-Two Contingencies

*Sale of Your Current Home: If you currently own a home and wish to use the money from selling it to close on your new home, your offer can be made contingent on the sale itself. If you already have a buyer and the existing home is already in escrow, it’s a good idea to insert this contingency anyway because sales can and do often fall through, meaning that this kind of contingency will prevent you from losing your earnest money if this occurs with your existing home.

*Homeowners Insurance:

This is something that you will definitely need to obtain if you wish to get a loan, and it can cost more money than you might have originally thought. However, you can protect against this by making the purchase itself contingent upon a CLUE report that is completely satisfactory or being able to obtain insurance that is completely affordable.

*Homeowners Associations:

Contingencies can help you with anything that would make you not want a home. For instance, if a homeowners association is only allowing you to have an exterior color that you despise or if there’s a fence on a neighboring property located in the wrong area, you can write a contingency that will cover all of this. Always make sure that it’s extremely important to you, otherwise desperate sellers will not want to deal with any of it.

Timing is Always Everything

Every contingency always comes with a time frame attached to it. Hard ones require you to sign off, while soft ones expire on a certain date. If you ever need to cancel a contract due to a contingency, your purchase offer needs to include the exact method in which to properly notify the seller. Always take the time to mark your calendar with contingency dates regarding your contract, as well as how they are to be met.