During a real estate transaction, contingency clauses are often used. These may be included in the purchase offer as part of the contractual obligation between both parties.
A contingency clause means that the execution of that contract – the sale of the real estate – is contingent upon something else occurring. If that other event does not occur, the contingency is no longer met, and so the contract is not binding.
This is important because the buyer who made the offer can sometimes walk away without penalty due to the violation of the contingency clause. In this sense, it is a protection for the buyer. They do not lose their down payment and/or are not contractually obligated to move forward with the sale, even though they made an offer.
2 common examples
These clauses can focus on a variety of areas. For one thing, buyers will often include a home inspection contingency. They may think that the property looks fine when they walk through it, but they still want to bring on a professional building inspector. The buyer is only obligated to move forward with the purchase if the house passes that inspection, but they can walk away if it fails.
Another example is a mortgage loan contingency. Many buyers are making offers based on a preapproval letter, but they have not been given final approval for the loan. If they do not get the loan, then they are no longer obligated to purchase the property if that contingency is in place.
Understanding real estate transaction contracts is important, and it can help to work with an experienced attorney.
