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Contingency
What Is a Contingency?
A contingency is a condition written into a contract that must be met for the agreement to proceed. If the condition is not satisfied, the contract may be canceled without penalty.
Why It Matters
Contingencies protect buyers and sellers by allowing them to exit agreements if certain requirements are not fulfilled. They reduce risk in financial and real estate transactions.
How Contingencies Work
Common contingencies include:
- financing approval
- home inspection results
- appraisal value
- sale of another property
- title clearance
If contingencies are unmet, parties may renegotiate or cancel.
Example
A buyer includes a financing contingency allowing them to cancel the deal if they cannot secure a mortgage.
Contingency vs Escape Clause
- Contingency sets conditions for moving forward.
- Escape clause allows exiting under specific circumstances.
FAQs About Contingencies
Are contingencies required?
Not required, but commonly used.
Can contingencies be removed?
Yes, but this increases risk.
Do contingencies delay closing?
They can, depending on conditions.
Related Terms
