What are Contingencies in a Real Estate Purchase Agreement?

Oct 8, 2020

Welcome to Mirna Morales Real Estate, your trusted source for comprehensive information on the world of real estate. In this article, we will explore the crucial topic of contingencies in a real estate purchase agreement. Whether you are a buyer, seller, or simply curious about the intricacies of real estate transactions, understanding contingencies is essential. So, let's dive into the details!

Why are Contingencies Important in a Real Estate Purchase Agreement?

A contingency is a condition or stipulation included in a real estate purchase agreement that allows either the buyer or seller (or both) to back out of the contract if certain conditions are not met. These conditions typically involve matters such as property inspections, financing, appraisals, and other aspects that may affect the successful completion of the transaction.

Contingencies are essential because they protect both parties involved in the real estate transaction. They provide a safety net, ensuring that each party has the necessary protection and recourse if circumstances change or if there are unexpected issues during the process. Without contingencies, buyers and sellers would be exposed to significant risks and potential legal disputes.

Different Types of Contingencies in a Real Estate Purchase Agreement

Now that we understand the importance of contingencies, let's explore some of the most common types:

1. Financing Contingency

A financing contingency protects the buyer and allows them to back out of the contract if they are unable to secure a loan or mortgage to purchase the property. This contingency ensures that the buyer is not obligated to complete the purchase if they cannot obtain the necessary financing.

When including a financing contingency, it is crucial to specify the type, terms, and duration of the loan or mortgage the buyer is seeking. The contingency may also outline the actions required by the buyer to secure financing within a specified timeframe.

2. Inspection Contingency

An inspection contingency allows the buyer to conduct a professional inspection of the property. This contingency gives the buyer the right to negotiate repairs, request credits for necessary fixes, or even cancel the contract if major issues are discovered during the inspection.

The inspection contingency should specify the type of inspection(s) to be conducted (such as a general home inspection, pest inspection, or radon testing), the timeframe for completing the inspections, and the process for negotiating repairs or credits with the seller.

3. Appraisal Contingency

An appraisal contingency protects the buyer by ensuring that the property's appraised value meets or exceeds the agreed-upon purchase price. If the property appraises for less than the purchase price, the buyer has the right to request a price reduction or terminate the contract.

This contingency typically highlights the timeframe for obtaining the appraisal report, as well as the actions that can be taken if the property appraises below the purchase price.

4. Title Contingency

A title contingency allows the buyer to review the property's title for any liens, encumbrances, or other title defects. If any issues are detected, the buyer has the right to request necessary remedies or withdraw from the contract.

This contingency outlines the timeframe for obtaining the title report, the actions that can be taken in case of title defects, and the procedures for resolving title-related issues.

Significance of Contingencies in a Real Estate Transaction

Understanding the significance of contingencies is crucial for both buyers and sellers. Here are a few key reasons why contingencies matter:

  • Protection: Contingencies provide a safety net, protecting buyers and sellers from potential risks and unforeseen circumstances.
  • Negotiation: Contingencies allow buyers to negotiate repairs, credits, or even reconsider the purchase price based on inspection or appraisal results.
  • Flexibility: Contingencies offer flexibility during the transaction, allowing parties to address and resolve issues that may arise.
  • Transparency: Contingencies promote transparency by ensuring that both parties have a clear understanding of the conditions that must be met for the transaction to proceed.


In conclusion, contingencies in a real estate purchase agreement serve as a vital protection mechanism, safeguarding the interests of both buyers and sellers. By having contingencies in place, parties can navigate the complexities of a real estate transaction while maintaining the necessary flexibility to address inevitable challenges.

At Mirna Morales Real Estate, we recognize the significance of contingencies and provide expert guidance to our clients throughout the buying and selling process. Whether you are a first-time homebuyer or a seasoned investor, our team is here to ensure a smooth and informed real estate experience.