What Is a Contingency?
A contingency in a real estate contract is a condition that must be satisfied before the sale can close. If the condition isn't met, the buyer typically has the right to cancel the contract and receive their earnest money deposit back. Contingencies protect buyers from being locked into a purchase under unfavorable circumstances — but in hot markets, sellers often favor offers with fewer contingencies.
The Three Core Contingencies
1. Inspection Contingency
The inspection contingency gives the buyer the right to have the property professionally inspected within a specified period (typically 7–15 days) and to:
- Accept the property as-is
- Request repairs or credits from the seller
- Cancel the contract if the seller won't agree to reasonable remediation
Buyers who waive the inspection contingency accept the risk of discovering significant defects after closing — defects the seller was under no legal obligation to disclose if the contingency was removed. This can mean inheriting costly foundation problems, roof failures, HVAC replacement, or hidden mold.
2. Financing Contingency
The financing (or mortgage) contingency protects buyers if they cannot secure a loan on the agreed terms. If the buyer is denied financing or can only obtain a loan at substantially worse terms, they can exit the contract and recover their earnest money.
Waiving this contingency means that if your financing falls through after you've gone under contract, you could lose your earnest money deposit — often 1–3% of the purchase price. Only buyers who are truly confident in their pre-approval (and ideally have full loan approval, not just pre-qualification) should consider waiving this contingency.
3. Appraisal Contingency
Lenders require an appraisal to ensure the property's value supports the loan amount. The appraisal contingency allows buyers to renegotiate or cancel if the home appraises below the contract price.
Without an appraisal contingency, a buyer who agreed to pay $450,000 for a home that appraises at $420,000 must either pay the $30,000 difference in cash, renegotiate with the seller, or forfeit their earnest money.
Other Common Contingencies
- Sale contingency: The purchase is contingent on the buyer selling their current home. Rarely accepted in competitive markets.
- Title contingency: The buyer must be able to obtain clear title insurance. Nearly universal — title defects are a valid reason to cancel.
- HOA review contingency: Buyers in HOA-governed communities often have a period to review governing documents, financial statements, and pending assessments.
Contingency Periods and Deadlines
Contingencies have specific deadlines — miss one and you may inadvertently waive it. For example, if your inspection contingency expires in 10 days and you don't submit a repair request or cancellation notice in writing by that date, you're generally locked in. Track every deadline in your contract carefully, and confirm all communications in writing.
Waiving Contingencies in Competitive Markets: The Risks
In extremely competitive markets, buyers sometimes waive contingencies to make their offers more attractive. This strategy carries real risk:
- Waiving inspection: You buy the house as-is, no recourse for discovered defects
- Waiving financing: You risk losing your earnest money if your loan falls through
- Waiving appraisal: You may need to cover a gap between appraised value and purchase price out-of-pocket
If you do waive contingencies, consider conducting a pre-offer inspection (with the seller's permission) so you go in with eyes open.
When a Dispute Arises Over a Contingency
Disputes arise when a buyer tries to cancel a contract by invoking a contingency and the seller challenges whether the contingency was properly exercised. Common disputes:
- Was the cancellation notice sent within the contingency period?
- Was the inspection deficiency serious enough to justify cancellation?
- Did the buyer make a good-faith effort to obtain financing?
These disputes can escalate to mediation or litigation, with the earnest money deposit at stake. A real estate attorney can advise you on whether your contract allows cancellation and the proper procedure to follow.
Discuss your case with Yates Anderson
Yates Anderson represents clients in Alabama, Florida, and beyond. Our attorneys handle complex disputes with the rigor of a national firm and the agility of a boutique. Request a case evaluation and an attorney will respond within one business day.
Frequently asked questions
Can I get my earnest money back if I cancel during a contingency period?
Yes — if you properly invoke a valid contingency within the specified deadline, your earnest money should be returned. Proper written notice within the contingency period is essential. Canceling outside the contingency period or without a valid contingency basis will typically result in forfeiture of the deposit.
What happens if the seller refuses to make repairs after my inspection?
You have three options depending on your contract: accept the home as-is, negotiate a price reduction or closing cost credit instead of repairs, or cancel the contract and recover your earnest money (if within the contingency period).
Is it safe to waive all contingencies on a home purchase?
It can be done but carries significant risk. At minimum, buyers should conduct a pre-offer inspection and have full loan approval (not just pre-qualification) before waiving contingencies. Never waive a title contingency — title issues can be catastrophic.
What does "as-is" mean in a real estate contract?
"As-is" means the seller will not make repairs or provide credits regardless of what the inspection reveals. The buyer accepts the property in its current condition. It does not relieve the seller of the duty to disclose known material defects — concealment of known defects remains actionable.