A contingent offer is a contractual clause that can protect buyers, assist in negotiations, and determine whether a sale will close or not. Here is everything buyers need to know about contingencies, various types of contingent offers, and how to use them to your advantage.
What is a contingent offer?
A contingent offer is an offer to purchase a home that includes specific conditions — called contingencies — that need to be met in order for a sale to go through successfully.
Most contingencies are designed to protect buyers, though some also safeguard sellers.
If one or more contingency is not met, a buyer can walk away from the deal without any penalties, usually recouping their earnest money deposit. This gives buyers additional protection against unexpected issues, such as major problems uncovered during a home inspection, a lower-than-expected appraisal, or difficulty securing a loan.
A contingent offer is not the same as a contingent listing. A contingent listing means the seller accepted the offer with contingencies, but the deal has not yet been finalized.
Need help understanding contingencies before you make an offer? Clever Real Estate can introduce you to top agents in your neighborhood who are familiar with common contingencies and who can help you write a strong offer, while still protecting yourself in the deal.
🔑 Key Takeaway: A contingent offer lets a buyer walk away from a home purchase without penalty if specific conditions aren’t met.
Common types of contingencies
A buyer and their agent decide whether they want to include any contingencies when submitting an offer, and what these contingencies will be. Here are some of the most common contingencies a buyer might include.
Inspection contingency
A home inspection contingency is a common contingency that gives the buyer the right to have a home professionally inspected. If the inspection reveals serious and costly problems, such as foundational issues or mold, the buyer can negotiate repairs, ask for a discount, or back out of the purchase entirely.
Generally, realtors do not recommend waiving the inspection contingency.
As Samantha Hampar from eXp Realty shares, “I would never advise a buyer (unless it's a seasoned investor) to waive their inspection contingency. No matter how good a home looks, you want licensed inspectors to give a report on the property.
“No home is perfect, but you want to know if there's going to be $35,000 worth of foundation repairs needed before committing to the home, allowing you to potentially negotiate repair credits,” she adds.
Why it matters: Inspection contingencies protect buyers against costly repairs so they don’t buy a house with serious problems that might not have been revealed in the listing description or initial walk-through.
Typical timeline: 7-10 days.
» MORE: Who Pays for a Home Inspection — the Seller or the Buyer?
Mortgage approval contingency
A mortgage approval contingency (also called a financing or loan contingency) is another widely used contingency that gives buyers a set timeframe to secure a mortgage loan before they officially buy the home. That way, if the buyer is unable to obtain financing for the property, they aren’t legally obligated to complete the sale.
Why it matters: This protects the buyer from being obligated to buy a home they cannot afford without a mortgage.
Typical timeline: 30-60 days.
Appraisal contingency
Typically, lenders require a professional appraisal to determine the home’s market value before approving the loan. This ensures that the lender can recoup the loan amount if the buyer stops making payments on the mortgage and the home goes into foreclosure.
If the house doesn’t appraise for at least the sales price, the lender won’t approve the loan. An appraisal contingency allows the buyer to renegotiate the price or exit the contract if the property appraises for less than the agreed price.
Buyers also benefit from this contingency by ensuring that the property they’re eyeing is worth as much as the seller thinks it is.
Why it matters: Appraisal contingencies protect buyers from overpaying and ensures lenders don’t loan the buyer more money than the property is worth.
Typical timeline: 10-30 days.
Title contingency
A title contingency allows a buyer to back out of a sale if the property does not have a clear title or is not free of liens or legal disputes. If the buyer discovers any title issues, they can require the homeowner to resolve them before closing or walk away from the sale.
Why it matters: This ensures a buyer purchases a home from its legal owner and receives full and clear ownership of the property.
Typical timeline: 5-7 days.
Homeowners insurance contingency
This contingency requires a buyer to obtain homeowners' insurance before closing on a home. Either party can walk away from the deal if insurance is denied (usually because of the home’s condition or location). In some cases, it can be requested by your mortgage lender.
Why it matters: Guarantees buyers can insure their home against loss and damage.
Typical timeline: 15-20 days.
Home sale contingencies
Home sale contingencies fall into two categories: settlement contingencies and sale and settlement contingencies. Both types are for home buyers who are simultaneously trying to sell their old home.
Settlement contingency
A settlement contingency is for a buyer whose current home is already under contract, but not yet finalized at settlement (closing), and they need to wait until after closing to proceed with the purchase of the new property.
With a settlement contingency, the seller of the buyer’s new home cannot continue to market the property or accept other offers.
Sale and settlement contingency
A sale and settlement contingency is for a buyer who’s selling their home but hasn’t yet received an offer. The buyer needs to both get an offer and close on their previous home before they can buy a new property.
This situation is less desirable for sellers, which is why a sale and settlement contingency typically allows them to continue marketing the home and accept backup offers.
Why it matters: Prevents buyers from being stuck with two mortgages or rushing to sell their current home at a loss.
Typical timeline: 30-60 days.
What happens if a contingency isn’t met?
There are several ways to proceed if a contingency is not satisfied. Any subsequent actions would depend on your particular situation and the terms outlined in the agreement:
- Cancel the contract and walk away. If a contingency is not met (for example, if an appraisal came back too low), a buyer can typically withdraw from the deal without penalties.
- Renegotiate with the seller. Instead of immediately walking away, you may choose to renegotiate the terms of the deal. For example, if a buyer has an inspection contingency in place and discovers a problem that requires repairs, they can ask a seller to eliminate the issue, lower the price, or put the value of the repairs toward a credit at closing.
- Request an extension. It may be possible to talk with a seller and ask them for a few extra days to resolve the issue if, for example, you need more time to secure financing. While the seller is not obligated to agree, there is a high chance they will grant you the extension.
❓What about the earnest money deposit?
If a buyer backs out of a sale for a valid contingency reason included in their contract, their earnest money is typically refunded. For example, if a buyer fails to secure financing, having a mortgage approval contingency will protect them from losing their deposit.
Pros and cons of including contingencies for buyers
✅ Pros
- Protects from unexpected issues and financial losses
- Gives negotiation leverage
- Allows for flexibility to walk away
❌ Cons
- May make your offer less attractive to sellers
- Could delay the transaction timeline
❗Waive vs. keep contingencies?
Keep: There are some contingencies realtors recommend including unless you’re well aware of all potential risks and are willing to accept them. Good examples are the inspection and appraisal contingencies, especially if you’re buying an older property or dealing with an unknown seller.
Waive: In a hot market, or if you have strong finances and are comfortable with risks, you might consider dropping some contingencies to make your offer more competitive.
How to make a contingent offer work for you
Partner with an experienced agent
A professional realtor should be able to help you decide which contingencies are essential and which can be waived based on your situation, the particular seller and property, and the local market.
Here is a story that realtor Samantha Hampar shared about helping her client purchase a coveted property:
“Understanding my client's budget limitations, we got extremely competitive with our contingency terms. We waived appraisal and loan contingencies because the comps showed this property could have appraised for $100k above our purchase price (which it ended up doing). Also, our lender was able to commit to quickly approving the loan within our seven-day inspection contingency period. So if there were any issues with the loan, we could back out, leveraging the inspection contingency.”
A seasoned expert can help you in many ways, from assisting with determining a property’s market value to developing a strategy that would protect the buyer without making the offer less lucrative.
Don’t have an agent yet? Clever Real Estate can help you find experienced agents in your neighborhood who can provide guidance around what contingencies to include in your offer, and which ones you can more safely waive.
Use contingencies strategically
While buyers can include as many contingencies as they wish, it’s essential to understand that contingencies can and often do weaken your offer. So, in a seller’s market, consider waiving minor contingencies but keeping major protections.
Also, it’s worth remembering that contingencies can be a great negotiation tool. For instance, a few realtors we talked to mentioned that an inspection contingency opened the door for negotiation with sellers who wouldn’t lower the price otherwise. This tactic allowed their clients to afford the house of their dreams.
Communicate clearly with the seller
Talk with the seller about timelines and expectations. In many cases, discussing the situation openly can be enough to fix the issue instead of walking away from a deal you have already invested time and energy in.
Be prepared to act quickly if you need to waive a contingency
As a buyer, you might face a kick-out clause, which is when the seller accepts the contingent offer but keeps the property on the market. If another offer comes along, you would typically have 72 hours (or another agreed-upon amount of time) to decide whether or not to remove any contingencies and go through with the sale.
Conclusion
Contingencies are a standard (and often necessary) part of buying a home. While they provide buyers with protection and flexibility, they must be used wisely to submit a winning offer and balance your risks.
A qualified real estate agent can help you determine which contingencies are right for your home purchase and use them to your advantage. If you need to find a top agent in your area, Clever can help!
FAQs about contingencies in real estate
Can I still buy a house if I include contingencies?
Yes. Most offers include contingencies and don’t prevent a successful purchase if conditions are met. However, in a seller's market, limiting the number of contingencies you include may be a good idea.
How long do I have to meet a contingency?
The exact period depends on your contract and the type of contingency. While some contingencies last as little as seven days, you can take up to 60 days to meet others.
What happens to my earnest money if I cancel due to a contingency?
If you cancel your contract for a valid contingency, your earnest money will most likely be refunded.
Can sellers accept backup offers on a contingent deal?
If there is a kick-out clause in your contract, then sellers can continue showing their home and accept a backup offer, giving you a set amount of time to decide whether to remove your contingencies.