What does "contingency" mean in a real estate contract?

In a real estate contract, "contingency" refers to a specific condition or set of conditions that must be satisfied for the contract to remain valid and enforceable. This means that the agreement is reliant upon these conditions being met; if they are not, the parties may have the option to terminate the contract without penalty.

For example, a common contingency in real estate transactions is a financing contingency, where the buyer's obligation to purchase the property is dependent on their ability to secure mortgage financing. If the buyer fails to obtain financing, the contingency allows them to back out of the deal without losing their earnest money.

Understanding the role of contingencies is crucial for both buyers and sellers, as they outline the responsibilities and expectations of each party in the transaction. Therefore, recognizing that a contingency is a condition that must be met for the validity of a contract highlights its importance in real estate agreements.