A Contingency is a provision or set of provisions that are included in a Real Estate contract allowing either the seller or buyer to cancel the contract is the contingencies are not cleared.

Let's say you are buying a home and need a mortgage loan in order to purchase the home. When you enter the contract to purchase real estate, you deposited an escrow deposit with the escrow agent, so what happens to this escrow deposit if you are not approved for the mortgage loan? A contingency in the real estate contract would allow you to cancel the contract in such a case.

Contingencies are set when the purchase contract is negotiated to protect both the buyer and the seller if those terms are not cleared. As a home buyer, you will want certain contract contingencies such as;

• Mortgage Financing - Generally stating that if the buyer is not approved for the loan, the contract is cancelled and the escrow deposit is returned to the buyer.
• Inspections - This contingency generally states that the buyer has the right to inspect the property for led-based paint, wood destroying organisms and pests, a roof inspection, electrical inspection, plumbing, sewer, radon gas, and other features of the home.
• Appraisal - If you are obtaining a loan from a lender, you are going to want the property to appraise for the purchase value or you might either have to dig into your cash reserve to pay the difference or your financing might not be approved.
• Clear title - When buying a home, you want to make sure the seller has the right to sell the house, or you might not be buying the property!
• Selling existing home - Many home buyers will need to sell their existing home in order to purchase another, if this is your case, you might need a contract contingency stating that the purchase of the new home is contingent on the sale of your existing home. This way if you existing home does not sell, you are not forced to purchase the contracted property.

These are just some of the real estate contract contingencies that you should consider when negotiating your home purchase. Depending on the property that you are buying, there are several other contingency to the contract that you should consider.