How Real Estate Contingencies Work

Buying or selling a home? You need to know about contingencies!

​You’ve found your dream home, the offer is accepted, and you’re ready to celebrate. But what if the inspection uncovers a major issue? What if your financing falls through?

Contingencies protect you.

Note: Before going too deep into the process, depending on the market you are in, writing an offer with a contingency will instantly destroy your chances of getting an offer accepted. In an extremely competitive market, buyers will often increase their odds of getting an offer to purchase a home accepted by waiving every contingency. To some buyers, it doesn’t matter if there’s problems with the structure of the home, they just want a home in the right location for them, or they’re simply tired of losing house after house. Some buyers don’t need to care about their financing falling through, because they are paying cash.

Before waiving, or not waiving contingencies, make sure to talk to your agents about the risks. It’s all about the context!

​🏡 What Exactly is a Real Estate Contingency?

​Simply put, a contingency is a condition that must be met for a real estate contract to become final and legally binding.

This is important because when an offer is accepted, there is an agreed upon deposit that must be made 1-3 days of an offer acceptance ( the standard is 1 day after acceptance and 3% of the purchase price deposit. Of course this is negotiated)

A contingency protects this deposit. You will NOT lose your deposit as long as you use the contingency in place to get out of the contract.

​Think of it as an “if-then” statement written into your purchase agreement.

​IF the condition is not met by a specified deadline, ​THEN the buyer (or sometimes the seller) has the right to walk away from the deal.

During this time, the buyer’s deposit is usually protected.

The way the contract works regarding contingencies depends on the state you are in so make sure your agents provide you with the context.

California:

A contingency is not waived until the buyers remove the contingency. If the contingency is still in place, the buyer remains protected. Lets say a buyer has a 7 day contingency. On day 7, nothing really happens automatically. In order for the deadline to be in effect, the sellers need to provide a notice to perform. This means that the buyers have 2 days to perform on the agreed upon contingency. In essence a 7 day contingency can sometimes turn out to actually be a 9 day contingency.

What happens if buyers don’t perform after the notice to perform? At this point the sellers don’t keep the deposit (unless the contract explicitly says that the seller can keep the deposit after a specific date. This is extremely rare and usually limited to option contracts).

The sellers biggest leverage is that they can now cancel the agreement. This allows them to go back on the market and find a buyer who can perform. However, sellers will usually not opt for this. Instead, sellers will try to figure out what the situation is and get buyers to waive the contingency so that the buyers move on to closing on the transaction.

This is why non-contingent offers are usually preferred! A contingency allows for extra negotiations and a delay in selling a home. So a seller might prefer to accept an offer that is lower in price, if it’s a non contingent offer. I wont give an exact number, but id say non contingent offers vs contingent are worth up to 50k in price difference.

Washington:

CONTINGENCY DAYS MATTER. At the end of whatever contingent period is written into the contract, if there is no request to extend the contingency, the contingency is waived. You cannot back out or else you would lose your deposit. In Washington it is really important for you to follow deadlines.

Note: contingencies are usually calendar days. The day you are under contract is day 0.

​4 Essential Contingencies Every Buyer Needs

​While you can write a contingency for almost anything, four types are considered standard and offer the most protection for a buyer.

​1. The Home Inspection Contingency

​This is arguably the most common and important contingency.

​What it does: Gives the buyer a specific timeframe (e.g., 7-14 days) to have the property professionally inspected.

​How it protects you: If the inspection reveals significant issues (e.g., a failing HVAC system, structural damage, major roof leaks), the buyer can request the seller to make repairs, negotiate a lower price, or terminate the contract and get their earnest money back.

​2. The Appraisal Contingency

​If you’re using a mortgage the lender will require an appraisal.

Buyers sometimes ask if lenders request an appraisal contingency. No that is not the case. What they request is having the appraisal itself being performed.

​What’s an appraisal? : Makes the purchase dependent on the home’s official appraised value meeting or exceeding the agreed-upon sale price.

​How it protects you: Lenders will not finance more than a home’s appraised value. If the appraisal comes in low, this contingency allows the buyer to renegotiate the price with the seller or cancel the contract. Without it, you’d have to cover the difference in cash or forfeit your earnest money.

​Pro Tip: Understanding “appraisal gap” is critical in a hot market where offers often exceed listing prices.

Here’s the reality: Appraisals are a scam. Time and time again, the property appraises to the sale price. Why? Well the appraiser knows what the purchase price is. So they will almost always just appraise the property to the sale price.

In the Bay Area, this contingency is almost never accepted.

In SoCal this is more common.

​3. The Financing (or Mortgage) Contingency

​Pre-approval is not the same as final loan approval. This clause covers that gap.

​What it does: Gives the buyer a set period (usually 7-15 days) to secure a binding commitment for their mortgage loan.

​How it protects you: If, for any reason - a sudden job loss, a change in interest rates, or a new issue with your credit you are unable to get the financing outlined in the contract, you can legally back out of the deal.

​4. The Home Sale Contingency

​This one is less common in competitive markets, but vital for move-up buyers.

​What it does: The buyer’s purchase is contingent upon the successful sale and closing of their current home by a certain date.

​How it protects you: It prevents the buyer from owning two homes at once (or having no money for the second purchase).

​Seller’s Catch: Sellers might be able to counter this with a “Kick-Out Clause,” which allows them to continue marketing the home and accept a non-contingent offer, giving the first buyer a short window (e.g., 72 hours) to remove their home sale contingency or lose the deal.

Timeline!

​Offer Accepted: The clock starts ticking and it is day 0.

​Due Diligence Period: You must schedule and complete your inspections, order the appraisal, and submit all final loan documentation before the deadlines expire.

​Removal or Action: On the deadline, the buyer should formally notify the seller that they are either:

​Waiving/Removing the contingency (meaning the condition is met and the deal proceeds).

​Invoking the contingency (meaning the condition was not met, and they are using it to renegotiate or terminate the contract).

The buyers can also request an extension of time for contingency.

Hopefully this helps you understand a bit more about contingencies!

Rene Perez Jr, Broker

CADRE:02115618

Washington:25027777

Colorado: EA100106018