What is a contingency in real estate contracts?

A contingency in real estate contracts refers to a condition that must be satisfied before the contract becomes binding and enforceable. This means that if the specified condition is not met, the parties may have the option to void the contract without facing penalties. Common contingencies can include requirements related to financing, inspection results, appraisal values, or the sale of another property.

Contingencies are critical because they protect the interests of the parties involved, allowing for a due diligence period where concerns can be addressed before finalizing the sale. For instance, if a buyer has a financing contingency and is unable to secure a loan, they can withdraw from the purchase without losing their earnest money. Understanding how contingencies work helps parties navigate real estate transactions more effectively, ensuring that they have the necessary protections in place throughout the process.