What is a Contingency in Real Estate?

The word "contingency" is incredibly common in a real estate sale, but often times people wonder what exactly is a contingency and how does it work.  Let's break this down some...

There are a number of contingencies in place when a buyer's offer is accepted by a seller and they move forward and open escrow.  A contingency is a conditional item that needs to be met and then the contingency would be released in writing.  The typical offer from a buyer has contingencies in place for inspection, appraisal, and loan approval.  There can be other contingencies beyond even those typical ones like contingency of sale (where a buyer has to get their own home sold to be able to follow through on the new purchase) and others that can be written into the contract.

Lets take the contingency of the buyers inspection for example.  If not modified, the California Real Estate Purchase Agreement gives the buyer 17 days from acceptance to complete any and all inspections that the buyer would like to complete on the property they're buying.  In that time they can have all the systems of the homes tested, verify the permits on improvements and modifications to the home, and satisfy themselves to the quality of the local school district among other things.  If at any time in those 17 days the buyers learn something about the property that cannot be fixed or the seller doesn't want to resolve they have the right to cancel the purchase agreement and receive their earnest money deposit back in full.

When these items are satisfied and the buyer is willing to move forward the contingency is then removed in writing and we proceed onto the next step of the purchase agreement.

Basically the contingencies are in place to protect one of the parties to the agreement (usually the buyer) and are removed upon their completion.  Pretty simple.  If this information helps you or anyone you know thinking about buying or selling real estate please reach out to me directly.  I'd love to help.