Contingencies in a real estate contract allow for the buyer to cancel, walk away or renegotiate the purchase of the property if all contingencies are not cleared.

For a seller these contingencies are a headache, since the sale of the property could fall apart. But as a buyer you want to protect your escrow deposit funds from forfeiture due to having to cancel the purchase of the property.

Let's say your view a home that you think is your perfect home. You negotiate the purchase price and then include an inspection contingency that allows you to have a certified home inspector perform the home inspection on the property. This contingency states that the repair cost must not exceed $2500, or the buyer has the right to cancel the purchase contract. You inspect the property and the discover that the plumbing needs to be completely replaced at a cost of $32,000. Wow that contingency just saved you a hefty expense.

Common Purchase Contract Contingencies

• Appraisal.
  If you are going to require a loan for the purchase of the property, most lender will require that the property appraise at or above the purchase price.
• Loan Contingency.
  You might think you have great credit, but what if you can't qualify for a home loan for any unforeseen reason. This is a standard contingency in most real estate contracts.
• Home Inspection.
  Make sure you have the right to inspect the property. Even thought you can't see any repairs, does not mean the house might not be falling apart!
• Lead-based Paint.
  Many homes built before 1978 contain lead-based paint. By law you have the right to inspect if the home you are buying was built before 1978.l
• Roof Inspection.
  When applying for a mortgage, most banks will require the property has a clear roof inspection. This is normally required as a poor roof can cause more than to the property, therefore lowering the value of the lender's collateral.
• Wood Destroying Organisms.
  Another common requirement is wood destroying organisms. When negotiating this, make sure to include who is paying for the inspection, and if any detached buildings are included in the inspection.
• Sewer Inspection.
  A clogged sewer can leave you with a bad smell. Sewers can get clogged by either roots, ground movement or a host of other factors. Make sure you get the sewers inspected. Can you imagine how expensive it would be to replace your home's sewer system?
• Radon and Mold Inspections.
  Radon is colorless and odorless, yet can cause serious harm. Mold can even grow in new homes.
• Private Well Inspections.
  Numerous homes have private wells, make sure this water is potable and the well is safe to use.
• Preliminary Title Report.
  This is one of those contingencies that is generally in all standard real estate purchase contract. You want to make sure you have a clear title prior to buying the property.
• Homeowner Association Documents.
  Some homeowner associations and Condo associations have requirement and bylaws requiring the buyer to submit to their approval prior to purchasing. Make sure you are approved by the association.
• Contingent on Selling Existing Home
  If you are moving from one home to another, you might have to sell your previous house in order to be able to purchase the new property, but what if the buyer on your previous property backs out? Make sure you protect your interest and make the contract contingent on the sale of your existing home.