Real Estate Contingency

Definition of "Real Estate Contingency"

Chris Silva, Real Estate Agent 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!