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.

$775,000

5 Bedrooms
5 Bathrooms
5,596 Sq Ft
0.890 Acres

3265 Foxridge Drive Jasper, Indiana

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Listing courtesy of Brenda Krempp from RE/MAX Local.

$724,600

3 Bedrooms
4 Bathrooms
4,319 Sq Ft
1.600 Acres

1015 W 15th Street Jasper, Indiana

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Listing courtesy of Caroline Gobert from ERA FIRST ADVANTAGE REALTY, INC.

$624,900

3 Bedrooms
2 Bathrooms
2,940 Sq Ft
14.820 Acres

1089 N 400W Jasper, Indiana

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Listing courtesy of Zach Holt from Whitetail Properties Real Estate.

$624,000

4 Bedrooms
4 Bathrooms
3,906 Sq Ft
0.595 Acres

3289 St Charles Street Jasper, Indiana

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

$475,000

4 Bedrooms
4 Bathrooms
3,955 Sq Ft
1.200 Acres

980 W Twentieth St. Jasper, Indiana

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Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$425,000

4 Bedrooms
3 Bathrooms
3,610 Sq Ft
1.300 Acres

1245 W 6th Street Jasper, Indiana

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

$399,000

3 Bedrooms
2 Bathrooms
3,076 Sq Ft
1 Acres

3515 Villa Drive Jasper, Indiana

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Listing courtesy of Leanna Graves from RE/MAX REVOLUTION.

$399,000

3 Bedrooms
3 Bathrooms
2,650 Sq Ft
0.780 Acres

3264 Lakeside Dr. Jasper, Indiana

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Listing courtesy of Larry Carpenter III from Carpenter Realty LLC.

$360,000

4 Bedrooms
2 Bathrooms
3,490 Sq Ft
0.371 Acres

307 Newton Street Jasper, Indiana

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Listing courtesy of Tama Stemle from RE/MAX Local.

$340,000

4 Bedrooms
4 Bathrooms
2,961 Sq Ft
0.294 Acres

333 Daisy Lane Jasper, Indiana

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Listing courtesy of Linda Schroering from CENTURY 21 SCHROERING REALTY.

$325,000

3 Bedrooms
2 Bathrooms
1,650 Sq Ft
0 Acres

614 W 34th Street Jasper, Indiana

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Listing courtesy of Daniel Hoffman from HOFFMAN & MULLEN REALTY INC.

$319,900

5 Bedrooms
3 Bathrooms
2,377 Sq Ft
0.346 Acres

1780 Sweet Gum Drive Jasper, Indiana

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Listing courtesy of Amanda Childers from Hawkins & Root Real Estate.

$315,000

3 Bedrooms
2 Bathrooms
3,232 Sq Ft
0.520 Acres

3508 N 600 W Road Jasper, Indiana

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Listing courtesy of Caroline Gobert from ERA FIRST ADVANTAGE REALTY, INC.

$289,000

3 Bedrooms
2 Bathrooms
1,648 Sq Ft
0.340 Acres

4130 N Portersville Road Jasper, Indiana

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

$274,900

3 Bedrooms
3 Bathrooms
2,172 Sq Ft
0.460 Acres

1244 W 14th Street Jasper, Indiana

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Listing courtesy of Steve Lukemeyer from F.C. TUCKER EMGE.

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