What Is a Contingency in Real Estate?
What it means for buyers in Washington State
If you’ve started looking at homes or thinking about making an offer, you’ve probably heard the word contingency come up a lot.
In real estate, a contingency is essentially a condition that must be met for the transaction to move forward. Think of it as a built-in protection for buyers (and sometimes sellers) during the home-buying process.
Contingencies help protect buyers from being locked into a purchase if something important goes wrong, like financing falling through, major inspection issues, or the home not appraising for the agreed purchase price.
Common Types of Contingencies
There are a number of different contingentcies that you can use in your transaction. Here, we’ll talkl about the most common ones, that you’ve probably heard about!
Inspection Contingency
This quite possibly is one of the most common contingencies in Washington State.
This contingency gives buyers the opportunity to complete a professional home inspection and review the condition of the property before fully committing to the purchase.
If significant issues are discovered, buyers may be able to:
negotiate repairs
ask for credits
renegotiate terms
or walk away from the transaction
Financing Contingency
A financing contingency protects buyers in the event they are unable to secure final loan approval.
It says that even if a buyer is pre-approved, there are still steps lenders must complete before funding a loan. This contingency helps protect buyers from losing earnest money if financing ultimately falls through for covered reasons.
Appraisal Contingency
When a buyer is using financing to purchase the home, the lender they’re using typically requires an appraisal to confirm the home’s value.
If the property appraises lower than the agreed purchase price, buyers may have the option to renegotiate the price, bring additional cash to closing, or walk away depending on the terms of the contract.
Sale Contingency
A sale contingency means a buyer’s purchase depends on selling their current home first.
These contingencies are less common in competitive markets, but they can still happen depending on market conditions and the specific situation. The buyer can put an offer on the home they like, and say “I can only buy this if my home sells.” There is usually a short period of time for the buyer to get their home listed and sold, or the contingency is not fulfilled.
Why Contingencies Matter
I feel that the word “contingency” can sound really scary for buyers! But buying a home is one of the biggest financial decisions most people will ever make.
Contingencies exist to help protect buyers during the process and provide opportunities to fully evaluate the home, financing, and overall transaction before everything becomes final. Think of a contingency as “I will buy the home, as long as XYZ is fulfilled.”
While some buyers choose to waive contingencies in competitive situations, doing so can increase risk significantly.
Can Buyers Waive Contingencies?
Yes. Some buyers choose to waive certain contingencies when submitting an offer. While some buyers do choose to waive contingencies in competitive situations, doing so can increase risk significantly.
In highly competitive markets, waived contingencies can sometimes make an offer more appealing to a seller. However, this also reduces protections for the buyer.
Every situation is different, which is why it’s important to fully understand what each contingency does before deciding whether or not to waive it.
Final Thoughts
Contingencies are not “bad” or something to fear in real estate. They’re simply tools designed to help protect buyers throughout the transaction process.
Understanding how contingencies work can help buyers feel more confident, informed, and prepared when making an offer on a home.
Have questions about buying a home in Washington State? I’m always here to help 🖤