What Are Contingencies in a Real Estate Purchase Contract?

Published On: September 18, 2022|Categories: Blog, Real Estate|Tags: Appraisal Contingency, Contingencies, Financing Contingency, Home Inspection Contingency, Real Estate Purchase Contract|

If you’re buying or selling a home, your real estate agent will build contingencies into your contract. But what are contingencies, and why will your agent use them? This guide explains what real estate contingencies are and how they protect you (and the other party) in your transaction.

What Are Contingencies in a Real Estate Purchase Contract?

Contingencies are conditions that must be met in order for a real estate purchase contract to become binding. In other words, if any of the contingencies are not satisfied, either party can back out of the deal. However, if both parties hold up their own ends of the bargain, the deal can proceed.

The 3 Most Common Contingencies in Real Estate Deals

Three of the most common contingencies in real estate purchase contracts include:

Appraisal
Home inspection
Financing

Here’s a closer look at each.

The Appraisal Contingency in a Real Estate Purchase Contract

The appraisal contingency protects the buyer by ensuring that the home is worth at least the purchase price. If the appraised value comes in lower than the agreed-upon purchase price, the buyer can back out of the deal without penalty. That’s because lenders won’t allow a borrower to borrow more than the home’s appraised value.

For example, if a home is listed at $350,000 and it appraises at $340,000, the lender will only let the borrower take out a loan for $340,000. If the borrower still wants to buy the home for $350,000, that’s fine – but they have to come up with the additional $10,000 from another source. The lender will only allow them to borrow the home’s appraised value.

The Home Inspection Contingency in a Real Estate Purchase Contract

The home inspection contingency protects the buyer by giving them the opportunity to have the property inspected for any defects or problems. If the inspection turns up any issues, the buyer can then negotiate with the seller to have those items repaired or corrected – or they can back out of the deal entirely.

For example, if an inspection reveals that the home’s roof needs to be replaced, the buyer can ask the seller to either repair the roof or lower the purchase price by an amount that would cover the cost of a new roof. The buyer may also ask the seller for a credit to repair the roof. If the seller refuses, the buyer can walk away from the deal.

The Financing Contingency in a Real Estate Purchase Contract

The financing contingency protects the buyer by giving them a certain amount of time to secure financing for the purchase. If the buyer is unable to obtain financing, they can back out of the deal without penalty.

For example, if a buyer has been pre-approved for a loan but then their lender decides not to give them the loan, the buyer can back out of the deal.

Should You Ever Waive Contingencies?

While contingencies protect buyers and sellers in a real estate deal, there may be times when it makes sense to waive them. For example, if you’re buying a home in a hot market and you’re competing against other buyers, waiving contingencies may make your offer more attractive to the seller.

Before you waive any contingencies, be sure to consult with your real estate agent and loan officer to make sure it’s a good idea in your particular situation.

$2,500,000

1895 Gun Club Road Jasper, Indiana

7 Beds 8 Baths 12,729 SqFt 10.370 Acres

Listing courtesy of Brenda Krempp from RE/MAX Local.

$719,000

938 E Jasper Dubois Road Jasper, Indiana

5 Beds 4 Baths 5,700 SqFt 6.100 Acres

Listing courtesy of Kevin Bayer from RE/MAX Local.

$597,000

3289 St Charles Street Jasper, Indiana

4 Beds 4 Baths 3,906 SqFt 0.595 Acres

Listing courtesy of Annette Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$559,900

1928 S A St. Jasper, Indiana

3 Beds 4 Baths 3,376 SqFt 6.258 Acres

Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$535,000

4382 E 300N Jasper, Indiana

3 Beds 4 Baths 4,100 SqFt 1.900 Acres

Listing courtesy of Gina Mehringer from F.C. TUCKER EMGE.

$510,000

5070 W Alder Creek Drive Jasper, Indiana

4 Beds 3 Baths 4,208 SqFt 1.500 Acres

Listing courtesy of Stephanie Hasenour from RE/MAX Local.

$464,000

4536 W 150 N Jasper, Indiana

4 Beds 4 Baths 2,986 SqFt 1.482 Acres

Listing courtesy of Stacey Thieman-Wright from THIEMAN REALTY.

$448,900

1525 Grandview Drive Jasper, Indiana

3 Beds 3 Baths 4,132 SqFt 0.354 Acres

Listing courtesy of Stacey Thieman-Wright from THIEMAN REALTY.

$435,000

844 Second Avenue Jasper, Indiana

3 Beds 2 Baths 1,572 SqFt 0.540 Acres

Listing courtesy of Josseline Carr from RE/MAX Local.

$420,000

3237 Dogwood Drive Jasper, Indiana

3 Beds 4 Baths 4,326 SqFt 0.675 Acres

Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$399,900

247 N Westlin Drive Jasper, Indiana

3 Beds 3 Baths 2,849 SqFt 0.999 Acres

Listing courtesy of Annette Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$399,000

836 W 20th Street Jasper, Indiana

3 Beds 3 Baths 4,376 SqFt 0.590 Acres

Listing courtesy of Elizabeth Mehringer from RE/MAX Local.

$349,900

1245 W 6th Street Jasper, Indiana

4 Beds 3 Baths 3,610 SqFt 1.300 Acres

Listing courtesy of Steve Wigand from ERA FIRST ADVANTAGE REALTY, INC.

$339,700

872 S Countryside Drive Jasper, Indiana

3 Beds 2 Baths 3,498 SqFt 2 Acres

Listing courtesy of Linda Schroering from SCHROERING REALTY.

$339,000

3255 E State Road 164 Jasper, Indiana

4 Beds 3 Baths 2,944 SqFt 1.024 Acres

Listing courtesy of Zach Holt from Whitetail Properties Real Estate.

Are You Thinking of Buying a Home in Dubois County?

Use our site to search homes for sale in Jasper, Dubois, Spencer, Martin and Davis counties, as well as all the surrounding communities. Unlike the “big name” sites out there, at Sell 4 Free Welsh Realty, our site is directly connected to our local MLS. We update it with new homes every hour.

Sign up for new listing alerts so you can stay on top of the newest homes for sale – and get price change alerts so you can stay ahead of other buyers and beat them to the hottest deals!