Real Estate Contingency

Definition of "Real Estate Contingency"

Chris  Silva real estate agent

Written by

Chris Silvaelite badge icon

Homesmart

Need to understand what is a real estate contingency?

In general, a contingency is a condition for something to happen, so the real estate contingency definition relates to provisions included in the sales contract stating that certain events must occur, certain actions must be taken and/or certain conditions must be met in order to make the contract valid. If not; the sales contract will automatically be voided.

So, in a lot of ways, a real estate contingency is also a negotiation tactic. A way to force the other party to take an action, otherwise you will back off the deal.

Here are some examples of a real estate contingency:

  • A home inherited by a son while his father is alive and living in it, will only have its title transferred to him, once the father dies. The transfer of title – already signed and everything – is contingent to the father’s death.
  • The need for the mortgage itself is a real estate contingency and most contracts have in writing something like “This contract is contingent upon the securing of a mortgage loan at an interest o X% or less by the home buyer”. With a deadline set, should the home buyer not secure that financing and not request in writing a deadline extension – plot twist! -  the contingency clause itself can become null and the home buyer becomes obligated to purchase the property; even if the loan is not secured.
  • The whole deal is usually contingent to a positive report by the home inspector in relation to certain minimum safety requirements.

Another real estate contingency is done on appraisal contracts. To protect the property, the homeowner makes a contingency clause in the appraisal contract establishing a minimum value for the house. If the appraiser values the house under, he agrees not to record the findings and make the appraisal null. He does receive the money for his services, though. But that only happens when the owner does the appraisal with no buyer yet; before he puts the house on the market. When there’s a home buyer, then the real estate contingency is usually to protect the home buyer, not the home seller: if the value is under the minimum, the home buyer can back away from the deal and, in many cases, retrieve the earnest money.

Real Estate Tips:

A real estate agent should be your contingency when selling or buying a house. They are used to all sorts of real estate contingencies; they’ve seen them all. Have one by your side helping you dodge the problematic ones and taking advantage of the helpful ones!

 

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

(1) The interest rate used to convert future receipts or payments in connection with real estate property to their present value. The cost of capital is used as the discount rate under the ...

Rules regarding day-to-day use of the premises. ...

A building having one house hold on the first floor and a second household on the second floor. ...

Expected selling price of property less costs to sell. It is the net amount received upon the sale of property. gross receivables less allowance for doubtful accounts, representing the ...

Also called purchase money mortgage. A seller's claim to property held by a buyer as collateral for a debt or charge. ...

Sponsor sells interest to real estate investors in one property only. The total amount received from the equity investors is used by the sponsor to buy the property for the partnership. ...

Factor used in present value computations to determine the current value of future cash flows. It is used to get the current value of what the selling price would be when the property is ...

Interest rate on a mortgage is changed periodically based on the change in a general price index to take into account inflation, such as a yearly adjustment. An example is the consumer ...

The term abutting comes from the verb “to abut” and the definition of abutting denotes more proximity than “adjacent”. Abutting is often used in real estate to ...

Popular Real Estate Questions