The 5 Most Common Home-Buying Contingencies

Jul 17, 2019Buying Basics, Homebuying Process

So you’ve found your dream home and are ready to make an offer. This offer will be presented in the form of a purchase contract, often referred to simply as the contract. This is one of the most crucial documents in a home purchase transaction. While there’s a lot of important parts to a contract, today we’ll be narrowing in on contingencies. Contingencies are a number of conditions that will have to be met before the sale can go forward. They exist to protect you, the buyer, from either ending up with a lemon or losing your deposit if the sale falls through. There are many types of contingencies you can include in a contract, but we’ll just be focusing on the most common ones.

Here are the five most common home buying contingencies to include in a real estate transaction.

1.) The Inspection Contingency

If you’ve done your homework, then you’ll probably already know about this one. Once an offer has been accepted on a home, things will move onto the due diligence period. This is when all home inspections are conducted, and the home title search is done to check for any liens. You wouldn’t buy a car without first taking it for a test drive. Likewise, you shouldn’t buy a home without first examining it for problems. There could be serious problems with the home such as dry rot, termites, malfunctioning systems or water damage. The seller may not even be aware of these which is why the inspection is so important.

If any problems are found that’s when the inspection contingency comes into effect. You can now either negotiate with the seller to have the problems fixed or have them reimburse you for the costs of repairs. If you can’t reach an agreement, then you can just walk away from the sale with your deposit in hand. This is a crucial step that you won’t want to leave out of any purchase contract. 

2.) The Financing Contingency

Buyers who are purchasing with the help of a home loan won’t want to forget this one. This contingency allows you a window of opportunity (usually 30-60 days) to receive financing once the offer has been accepted. In the event that your mortgage application is rejected then you are allowed to exit the deal without any penalties. Many first-time buyers make the mistake of thinking that their mortgage is a done deal once they’ve been preapproved. Unfortunately, that’s not the case, there’s still the prequalification stage to get through before your loan is set in stone. Normally you can’t get out of a deal once both parties have signed the contract. At least not without facing legal ramifications. The financing contingency allows you to back out and retain your deposit.

3.) The Home Sale Contingency

If you need to sell your current home in order to purchase your new one, then this contingency might interest you. The home sale contingency allows buyers a specified amount of time to find someone to buy their home once their offer on the new one is accepted. If you can’t find a buyer in time, then you have a way out of the contract. As might be imagined, sellers don’t tend to be happy with this. Typically, it will only be accepted as a last resort. If you’re going to include this contingency, then just know that it will weaken your offer. Our advice is to only include this if there’s a buyer’s market with few buyers and many sellers. 

4.) The Title Contingency

As mentioned earlier, once an offer is accepted the due diligence period begins. Part of this process involves the title search which is an evaluation of who has owned the home, both past, and present. An attorney will usually do this to check that the title is clear of any liens that could complicate the sales transfer. Some issues can be easily cleared up before closing but others can’t. The title contingency allows you to easily exit the deal in order to avoid a contested ownership or having to pay off someone else’s debts.

5.) The Home Appraisal Contingency

This is a contingency included to protect the mortgage lender. Before a loan can be approved, a home appraisal must be done to verify that the loan amount matches the homes actual market value. If the appraisal comes back saying that the home is worth less than the loan amount then you, the buyer, are responsible for paying the difference. In a best-case scenario, you might be able to renegotiate with the seller for a reduced asking price or find additional funds. If you can’t reach an agreement or foot the bill yourself then the appraisal contingency allows you to exit the deal.


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