Contingency Clause: 11 Cues for Securing Efficient Real Estate Deals

Contingency Clause

Hi! Welcome to Contingency Cues.

Buying or selling a home is one of the most stressful things you will ever do. And when there are contingency clauses in the contract – these tricky provisions make the process complicated enough to give anyone a headache.

As a contract drafter with over 8 years of experience, I’ve seen my fair share of deals impacted by contingencies. I’ve also learned how powerful contingencies can be when used correctly. They give both buyers and sellers an easy “out” – a way to back out of a deal if certain agreed-upon conditions aren’t met.

In this comprehensive “Contingency Cues” guide, we’ll break down exactly what they are, why they matter, and how to use various levels of them to your advantage.

Lastly, we’ll also go through some real-world examples and sample contingency clauses that demonstrate their practical use and results.

Whether you’re making an offer, reviewing a contract as a seller, or just want to sound smart at your next dinner party, you’ll learn insider tips to navigate contingencies with confidence.

Contingency Cues are more than just a guide – they’re a signal of success in real estate deals.

So, let’s get started!


Define Contingency Clause

Real estate transactions involve a lot of moving parts, not to mention hundreds of thousands of dollars changing hands. Contingencies allow some wiggle room in case issues pop up. Without them, buyers and sellers are locked into a deal no matter what.

Example: A homebuyer may include a contingency clause that requires a satisfactory home inspection report for the sale to proceed. If termites are found, the buyer can choose not to proceed. Imagine the savings in money and hassle!

Its Significance in Commercial Contracts

Contingency clauses are safeguards in commercial contracts. They allow parties to establish certain conditions that must be met before finalizing the contract, minimizing potential risks.


What is Contingencies in Real Estate?

A real estate contingency is a condition in a property purchase agreement that must be met before the deal can be finalized.

It’s a clause that says, “We have an agreement, but if X, Y, or Z happens, we might have to renegotiate or cancel the contract.” They assist with common issues that may arise, such as financing, inspections, and title problems. They offer protection to prevent heartache and financial risk.

Contingency vs. Contingent Listing

The difference between a contingency and a contingent listing can be confusing for many people.

  • A contingency is a contract clause that must be fulfilled for the contract to proceed.
  • Whereas contingent means a listing of a property that has accepted an offer and is currently under contract. But the sale is subject to the meeting of certain conditions.

What’s the Nature of Contingency Contracts?

They are conditional agreements rather than binding contracts. If the buyer’s financing falls through, for example, the contract becomes void.

Contingencies make the agreements reversible in certain scenarios.

Its Importance for Investors

Contingencies are important for investors who rely on financing, appraisals coming in at value, inspections not revealing major issues, etc. They provide an option to negotiate lower prices based on verifications or if the property doesn’t appraise at a certain value.

Investors utilize contingencies to ensure deals make financial sense before closing. They provide an exit strategy if key criteria aren’t met.

Common Real Estate Contingencies with Examples

Real Estate Contingencies

#1 – Appraisal Contingency

Allows the buyer to back out or renegotiate if the appraisal comes in lower than the agreed-upon price. Protects them from overpaying.

Example: “This Agreement is contingent upon the property Appraising for at least the Sale Price. If the Appraisal comes in lower than the Sale Price, the Buyer has the option to renegotiate the Sale Price or cancel the Agreement with the earnest money returned in full.”

#2 – Financing Contingency

Gives the buyer an exit by getting their earnest money deposit back if they are unable to secure a mortgage under the terms specified in the contract.

Example: “The Buyer’s obligation to purchase the Property is contingent upon the Buyer securing a conventional thirty (30) year fixed-rate mortgage for $300,000 with an interest rate no higher than three and a half (3.5%) percentage within thirty (30) days of the Execution Date. If the Buyer is unable to secure financing at or below the specified details, this Agreement gets void with the earnest money returned in full to the Buyer.”

#3 – Home Inspection Contingency

Allows the buyer to cancel or renegotiate if the inspection reveals issues that exceed a predefined dollar threshold or if the seller refuses to address the problems.

Example: “This Agreement is contingent on the Buyer having the Property inspected by a professional home inspector within ten (10) days of the Execution Date. If any significant defects or deficiencies exceeding Two Thousand US Dollars ($2,000) are discovered, the Buyer reserves the right to request repairs, renegotiate, or terminate this Agreement and have the earnest money returned in full.”

#4 – Home Insurance Contingency

This is important in disaster-prone areas or properties with past claims. It ensures buyers can cancel the contract if they can’t get reasonable home insurance.

Example: “This Agreement is contingent upon the Buyer obtaining homeowners insurance for the Property within thirty (30) days of the Execution Date at a monthly premium not exceeding $150. If insurance cannot be obtained, this Agreement gets void, with the earnest money returned in full to the Buyer.”

#5 – Right to Assign Contingency

Allows the buyer to assign the contract to another party, useful for investors who flip properties.

Example: “The Buyer reserves the right to assign this Agreement in whole or in part to any third party without further notice to the Seller. Such an assignment does not relieve the original Buyer of their obligations under this contract unless expressly agreed to by the Seller.”

#6 – Sale of a Prior Home Contingency

Gives the buyer time to sell their existing house to finance the purchase of a new one. If their home doesn’t sell within that specific timeframe, the buyer can cancel the deal.

Example: “This Agreement is contingent on the sale and closing of the Buyer’s current home located at 123 Main St. by no later than sixty (60) days prior to the Closing Date for this Property. If the Buyer’s home is not sold within the Closing Date for this Property, the Buyer has the option to terminate this Agreement with earnest money returned in full.”

#7 – Title Contingency

Allows time for title issues like liens, easements, or other encumbrances to be resolved. It ensures that the buyer receives a clear and unquestionable title to the property and provides an exit if problems can’t be resolved.

Example: “This Agreement is contingent upon a clear title review by the Buyer’s attorney. If any liens, encumbrances, or title defects are discovered, the Seller will have thirty (30) days to remedy the defects, or this Agreement can be terminated by the Buyer with the earnest money returned in full to the Buyer.”

Levels of Contingencies in Real Estate

There are generally three levels of contingencies:

#8 – Contingent: Continue to Show

This means the seller can continue showing and marketing the home even with a contingent offer. It’s like being engaged but still dating, since you’re not married yet.

Example: “Even though this Agreement is in effect, the Seller may continue to show the Property to potential buyers and accept backup offers.”

#9 – Contingent: No Show/Without Kick-out

The seller cannot show or market the home to other buyers once the contingent offer is accepted. However, there is no formal kick-out clause, so the seller cannot accept a new offer until the contingencies expire. In this, you’re engaged and fully committed to making the current relationship work, like deciding not to date others.

Example: “While this Agreement is in effect, the Seller agrees not to show the Property or accept any other offers without the written consent of the Buyer.”

#10 – Contingent: Release/Kick-out

This includes a kick-out clause that allows the seller to terminate the contract if a better offer comes in before contingencies are cleared. The first buyer’s earnest money is released and returned. It’s like being engaged but still dating others and being willing to end the engagement if someone better comes along.

Example: “The Seller may continue to market the Property. If the Seller receives an acceptable offer from a new buyer, the Seller can demand that the current Buyer release their contingencies. If the Buyer does not release the contingencies within three (3) days, this Agreement will be null and void, and the Seller is free to accept the new offer by returning the Buyer’s earnest money deposit in full.”

#11 – Escalation Clause

This boosts your offer’s competitiveness. It automatically increases the buyer’s offer price if the seller receives higher competing offers. Remember to set an upper limit to avoid losing the financial battle.

Example: “In the event the Seller receives a bona fide offer on the Property that is higher than this offer, the Buyer agrees to increase their offer to $$$ above the amount of the highest offer received by the Seller, up to a maximum purchase price of $$$. The Seller will provide the Buyer with proof of the competing offer. If the highest offer exceeds the Buyer’s maximum stated price, the Seller may accept the higher offer by returning the Buyer’s earnest money deposit in full.”

Sale Contingency vs. Settlement Contingency

These contingencies offer buyer protection at different stages of the home-selling process.

  • A sale contingency means you buy only if your current home sells first.
  • A settlement contingency means you can only close on the new home if you’ve closed on your current home.

The level of contingency dictates the seller’s options and provides different degrees of protection for the buyer.

  • Buyers prefer “No Show Without Kick-Out,”
  • While sellers prefer “Continued Showing and/or formal Kick-Out Clauses.”

The Concept of Reverse Contingency

Have you heard of the saying “life is like a boomerang game”?

That’s how reverse contingencies work. They disrupt the usual order and redirect the boomerang unexpectedly.


In real estate, a reverse contingency is a condition set by the seller instead of the buyer. Buyers usually set contingencies to protect themselves, but this is the opposite. The seller may add a clause stating that the sale depends on them finding and securing their next home.

Example: “This Agreement is contingent upon the Seller finding and securing a new property of their choice within ninety (90) days of the Execution Date. If the Seller is unable to secure a new property within the specified period, the Seller has the right to terminate this agreement by returning the Buyer’s earnest money deposit in full.”

Ideal Scenarios

Reverse contingency is best used in a seller’s market. In a fast-paced market, properties sell quickly, so sellers require additional time to find their next home, fearing becoming homeless. A reverse contingency provides them with a buffer of protection.


Reverse contingencies are helpful, but they deter buyers. So, alternatives to reverse contingencies include bridge loans to cover both mortgages temporarily, renting back the sold home agreement, or moving into temporary housing.

How do Reverse Contingencies Protect Sellers?

They help sellers by ensuring they line up a new home first before finalizing the sale. This prevents the risk of being left without housing and provides peace of mind.

Key Elements of Contingencies in Real Estate Contracts

Contingency Contract

A good real estate deal has key ingredients, just like a master chef following a recipe for the perfect dish.

Here’s a recipe for a contingency contract:

Specific Events

Contingency contracts must clearly define the specific events or conditions that dictate that the buyer can exit the contract.

Example: The appraisal amount range, loan approval within a timeframe, and quality of inspection results allow both parties to negotiate or back out if things don’t go as planned.


Definitive deadlines are necessary so both parties know when contingencies need to be cleared or waived. Typical timeframes range from a couple of weeks to a couple of months to keep everyone alert and prevent the deal from dragging on indefinitely.

Example: Cinderella had to leave the ball before midnight, or her carriage would turn back into a pumpkin.

Making the Agreement Binding

Contingencies make the contract non-binding until removed in writing. Language is included stating that the agreement becomes fully binding only after the contingencies expire or are satisfied.

Exercise of Contingency in Writing

Exercising a contingency means backing out of a contract based on a specific clause. Please write it down for a clear and verifiable record. Written communication is important for making decisions and obtaining legal protection.

Benefits and Risks of Buyer Contingencies

Buyer contingencies have benefits and risks, similar to the ebb and flow of ocean tides. They can protect buyers if used correctly, but they can also be risky if misunderstood.


Benefits include avoiding unexpected costs, overpaying, or issues found in inspections. Contingencies provide an exit strategy to back out of a deal without losing your deposit if certain conditions aren’t met.


The main risk is that a seller may choose a non-contingent offer over yours, especially in a competitive market. Missing deadlines can result in losing the deal or your earnest money.

Probability of Contingent Offers Falling Through

So, this proves that contingencies do play an important role in market ups and downs.

Tips for Improving a Contingent Offer’s Appeal

To make contingent offers more attractive, you can consider:

  • limiting the inspection scope;
  • offering gap coverage for appraisals;
  • increasing earnest money deposits;
  • reducing contingency periods;
  • increasing earnest money deposits;
  • Finally, higher prices can offset contingencies.

The intent is to show the seller that you’re serious and committed to buying.

What Contingencies Should Never Be Waived?

Inspection and financing contingencies should not be waived due to high risks.

FAQ: When Contingencies Are Not Met

The Consequences

If contingencies are not satisfied by the deadlines, the buyer typically has two options: waive the contingencies and proceed anyway, or terminate the contract.

Implications for Earnest Money

If the contingencies were drafted correctly and the buyer backs out due to one of them, the earnest money should be returned. It’s an escape hatch that doesn’t forfeit the deposit.

Deadline Passes

If the buyer doesn’t remove the contingency by the deadline, the contract is nullified, and the seller can instruct the escrow agent to release the earnest money, or the parties can extend the contingency period if desired.

Can a Seller Accept Backup Offers While a Property is Contingent?

Absolutely! Sellers can accept backup offers under a contingent contract. This is a wise decision, as it ensures progress even if the current deal fails. But they can only finalize a sale depending on the degree of contingencies provided to the buyer.

Understanding Various Contingency Statuses

  • Active‘ listings are available for offers, like dishes on a restaurant menu waiting to be ordered.
  • Pending‘ listings are almost ready to close, with all contingencies met.
  • Contingent‘ status on a property listing is like a ‘proceed with caution’ sign. It means the seller has accepted an offer with contingencies still pending but is not fully sold yet.
  • Contingent with a Kick-Out‘ means the seller can consider other offers and remove the initial buyer if their contingency isn’t met promptly. It’s like ordering quickly at the restaurant or risking losing your table.
  • Contingent with No Kick-Out‘ means the seller cannot terminate the contract while it remains contingent. It’s like a restaurant holding your table until you’re ready to order.
  • Satisfactory Walk-through Contingency‘ is like test driving a car before purchasing. The buyer inspects the property’s condition before closing the deal.
  • Zoning/Land Use Contingency‘ ensures the property can be used as the buyer intends, just like making sure you can park your RV in the new driveway.
  • Title and Survey Contingency‘ provides time to uncover any hidden issues with the property’s title or boundaries and survey for any concerns that could affect the purchase.
  • Cost-of-Repair Contingency‘ specifies a dollar threshold of inspection-identified issues the seller must remedy based on cost.
  • Homeowners Association (HOA) Document Review Contingency‘ allows the buyer to review condo/neighborhood bylaws, fees, and restrictions before closing. It’s like reading the rules before playing to avoid any surprise fees or restrictions later.

Case Study

In Watson v. Gerace, the sellers attempted to cancel a real estate contract, claiming that a “Credit Approval Letter” did not meet a mortgage contingency clause. The district court and the Third Circuit Court of Appeals ruled in favor of the buyers, setting a precedent on mortgage contingency clauses in real estate transactions.

The Right of First Refusal in Real Estate


A right of first refusal gives a potential buyer the option to match any offers the seller receives for the property. It guarantees them the chance to purchase before the seller can accept another offer.

Example: Imagine you’re renting a beautiful villa and your landlord decides to sell it. If you have a right of first refusal in your lease, you have the opportunity to buy the property before the landlord sells it to someone else. Isn’t that cool?

Potential Pitfalls

Assuming you’ve got the right but lack the funds or a pre-approved mortgage to purchase the villa. Your chance could still be missed.

And from the seller’s point of view, a right of first refusal can discourage buyers who don’t want to risk losing the property after putting in time and resources.


Contingency clauses enable real estate transactions to move forward that may not otherwise be feasible for buyers and sellers.

They allow buyers and sellers to protect their interests by making the agreement conditional upon the occurrence of certain pre-determined events.

Contingencies provide an exit strategy if aspects of the deal end up being unsatisfactory or prohibitive. When used strategically, they allow buyers to compete with contingent offers and secure protections. For sellers, they reduce risk until buyers have cleared contingencies and become fully committed.

There is no universal contingency plan. Assess your situation, understand your risk tolerance, and negotiate terms that benefit you.

The key is understanding the common types of contingencies, establishing clear terms, setting reasonable timeframes, and knowing how to exercise the clauses appropriately if conditions are not satisfied.

With the right contingency strategy, real estate deals can be secured and closed successfully.

Cheers to your next real estate adventure!

I wish you a smooth journey and successful contingencies. Cheers!

Over to You

I hope this comprehensive “Contingency Cues” guide has provided you with useful insights!

Now, it’s your turn.

I want to hear your thoughts and experiences on real estate contingencies.

Have you ever had a situation where a contingency plan helped or when not having one caused a problem?

Either way, share your insights by leaving a comment below right now!

I’m excited to hear back from you!

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