What is a "contingency" in a real estate contract?

A contingency in a real estate contract serves as a condition that must be fulfilled for the contract to remain valid and binding. Common examples of contingencies include the buyer obtaining satisfactory financing, satisfactory home inspections, or the sale of the buyer's current home. These conditions protect both parties to ensure that certain criteria are met before they are fully obligated under the contract terms.

If a contingency is not met, the party that benefits from it can often cancel the contract without facing penalties. This flexibility is crucial in real estate transactions, as it allows buyers and sellers to navigate various aspects of property sales, ensuring that critical issues are addressed before proceeding with the closing process. Understanding this concept helps stakeholders manage risks and facilitate smoother transactions in real estate.