Understanding Contingencies and Their Role in Real Estate Transactions

When it comes to buying or selling a home, there are a lot of moving parts that need to come together to ensure the transaction is a success. One key piece of the puzzle that can’t be ignored? Contingencies. Part of any standard home purchase contract, contingencies deal with items such as inspections, financing, insurance and agreed-upon repairs that must be completed before a deal is finalized.


Contingencies are an important part of any real estate transaction simply because if something that was agreed to is not done, you have an out. For example, if the deal was contingent upon the home seller replacing the water heater or fixing a leaky pipe and these things aren’t done by closing time, you’re not required to go through with the deal. And this puts all the negotiating power in your court.

A financing contingency is usually on the onus of the buyer, and states that they must secure an acceptable mortgage or other means of financing to buy the home. With so many loans falling through, this is a safety net for the seller that ensures the sale will go through. If not, an agreed-upon fine will be imposed and the seller can re-list the home.

Additionally, some buyers have added an insurance contingency to their contracts to make sure they will be able to get insured. With many living in states with a history of toxic mold, earthquakes or floods, insurance carriers no longer automatically issue a policy, so the contract can be contingent on applying for and receiving an insurance commitment in writing.

Other popular contingencies include the seller asking that the deal be made contingent on his or her successfully buying another home, or the buyer making the deal contingent on selling his or her own home. A home sale contingency can be risky to sellers as there’s no guarantee that the other home will eventually sell. Even if the contract allows the seller to continue to market the property and accept offers, the house may be listed “under contract,” making it less attractive to other potential buyers. In a hot market, these are often not agreed to, but when things are slow, you’ll find an increase in these contingency plans.

The most important part of any contingency is putting it in writing. Your agent can help you incorporate contingencies as part of your own contract or as part of the contract you and the seller agree on. 

A home transaction is one of the largest transactions you’ll ever take part in, so make sure you take the proper steps to ensure you get what you pay for.

To learn more about contingencies, contact our office today.

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