What is a contingency? In the purchase agreement, contingencies outline the conditions that must be met to finalize a property’s purchase. In other words, the home’s sale is “contingent” upon these prerequisites being satisfied. Contingencies typically serve as buyer protections and give the buyer an “out” if a condition of sale is not satisfied. If a buyer wants to make their offer more competitive, they can choose to purchase the home without contingencies since most contingencies are more of a buyer perk than an obligatory contractual element.
How does a contingency agreement work? When an offer is placed on a property, contingencies are outlined in the offer. Once negotiations are final and an offer is accepted, the purchase agreement will reflect the agreed upon contingencies and their respective deadlines. Contingencies are to be satisfied during the escrow period, and each different contingency has a specific deadline. Once the deadline arrives, the contingency is removed and is no longer grounds for abandoning a contract.
Example: Imagine a buyer has a 10 day inspection contingency and a 12 day loan contingency. Once escrow opens, the buyer has 10 days to complete inspections, and then once that contingency is removed, they have 12 days get their finances in order. If during that 10 day inspection period the buyer discovers something wrong with the property, they can pull out of the contract. However, after that 10 day period ends and the contingency is removed, inspection results are no longer grounds for quitting the contract.