Contingency Clause
A contingency clause is a contract condition that must be met for the sale to proceed. Common contingencies include financing, inspection, and appraisal.
Definition
A contingency clause in a real estate contract specifies conditions that must be fulfilled for the transaction to proceed. If the contingency isn’t met, the buyer typically has the right to cancel the contract and recover their earnest money deposit. Common contingencies include financing (the buyer must secure acceptable mortgage terms), inspection (the home must pass an inspection without major defects), appraisal (the property must appraise at or above the purchase price), sale of the buyer’s current home, and clear title. Contingencies protect buyers from unforeseen issues but may weaken offers in competitive markets. Sellers sometimes request waiving or limiting contingencies to strengthen a buyer’s commitment.
Why It Matters
Contingencies are the doors you can walk out of with your earnest money intact. In Washington the inspection contingency runs on business days from mutual acceptance, and if your written response does not land before it expires, the protection is waived and a $20,000 deposit is exposed. Sellers read the same clauses as risk: an offer stacked with financing, inspection, appraisal and home sale conditions can lose to a cleaner offer $15,000 lower.
Examples
A buyer's 10-business-day inspection contingency ends on a Tuesday. Her request for a $12,000 repair credit goes in at 4:50pm that day and preserves her right to cancel.
During underwriting a buyer's employer moves her from W-2 to 1099. The loan collapses, and the financing contingency returns her $30,000 earnest money.
A competing buyer waives the appraisal contingency and agrees to cover up to $50,000 of shortfall. The appraisal lands $12,000 low and he pays it rather than lose his deposit.
Tips
Count every deadline in business days from mutual acceptance and put each one on a calendar the day the contract is signed. NWMLS forms default to business days and holidays do not count.
Deliver every contingency response in writing on the correct form, even a simple waiver. Agents agreeing verbally does not amend a real estate contract.
If you plan to waive inspection, still get a pre-inspection before writing the offer. Waiving the contingency is a negotiating choice; buying blind is a different and worse one.
Related Terms
Inspection Contingency
The inspection contingency allows buyers to renegotiate or exit based on inspection results. Learn h...
Kick-Out Clause
A kick-out clause allows sellers to continue marketing a home under contract with contingencies. Lea...
Offer
An offer is a formal proposal to buy property at specified terms. Understand how earnest money, cont...
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