What Contingencies Belong in a Real Estate Purchase Contract?

A contingency is a condition that must be satisfied before you are obligated to close, and each one is a door back out of the contract with your deposit. The door closes on a date. Miss the deadline for an inspection notice or a financing termination and most contracts treat the contingency as waived, leaving the deposit at risk if you cannot close. The right set of real estate contract contingencies depends on how you are paying, what you know about the property, and how competitive the market is, and the drafting matters as much as the choice.

Financing and appraisal

A financing contingency lets the buyer terminate if a loan on stated terms is not approved by a stated date. The drafting should name the loan type, amount, and maximum rate, require the buyer to apply promptly and in good faith, and say what proof of denial the seller can demand. A vague clause (“subject to financing”) invites a dispute over whether the buyer tried hard enough. The appraisal contingency is separate: if the lender’s appraisal comes in below the price, the buyer may renegotiate or terminate. Buyers who waive it to win a bidding war must be ready to cover the gap in cash, since the lender will lend against the appraised value, not the contract price. Government-backed loans carry a mandatory clause that preserves the buyer’s right to walk if the appraisal is low, regardless of what else the contract says. Our contract negotiation work on the buyer side usually starts with these two clauses, because together they decide whether the deposit is really at risk.

Inspection and due diligence

Inspection contingencies come in two forms. One gives the buyer the right to inspect and then either accept the property or terminate, with no obligation on the seller to negotiate. The other gives the buyer the right to request repairs, triggers a response period for the seller, and lets the buyer terminate if the parties do not agree. Know which one you have before the report arrives; our note on negotiating repairs after an inspection explains how each plays out. Specialized inspections (radon, wood-destroying insects, well and septic, lead paint, sewer line) need their own time or a single due diligence period that covers all of them. Commercial contracts replace the inspection clause with a study period during which the buyer may terminate for any reason; that is the most powerful contingency of all, and it is why commercial buyers fight for its length.

Title, survey, and association documents

Nearly every contract requires the seller to deliver marketable or insurable title, and the buyer should have a defined period after receiving the title commitment to object to exceptions and a defined cure period for the seller. The survey should run on the same track, since encroachments and easements show up there rather than in the commitment. For condominiums and planned communities, Virginia gives the buyer a statutory right to cancel within three days after receiving the resale certificate or disclosure packet, and contracts in the District and New York typically provide a review period for the condominium documents or, for a cooperative, a contingency for board approval. Our note on owner’s title insurance explains what the commitment shows and why the objection deadline matters.

Sale of the buyer’s current home and other special conditions

A home sale contingency makes the purchase depend on the buyer closing on their current home. Sellers accept it reluctantly and usually pair it with a kick-out clause: the seller may keep marketing, and if another offer arrives the buyer has a short window to remove the contingency or step aside. Other special conditions include a seller rent-back, a tenant’s vacancy by closing, delivery of tenant estoppels on income property, and for development land an entitlement contingency tied to zoning or permit approval. Each should state what satisfies it, who decides, and the outside date.

Deadlines, notices, and waiver

The mechanics decide everything. Count the days the way the contract counts them (calendar or business days, from ratification or from delivery of a document) and put each deadline on a calendar the day the contract is signed. Deliver notices in the form and to the address the contract requires; a text message to the agent may not count. Get extensions in writing before the deadline, not after. Understand the default outcome of silence: some forms treat an unexercised contingency as waived, while others treat the failure of a condition as automatic termination. And remember that a contingency protects the deposit only if it is used correctly; a buyer who misses the window and then refuses to close has converted a free exit into a breach. Our note on what happens when a buyer backs out describes the consequences. Where the contract comes from a regional form, our transaction counsel reviews the form’s default rules against the addenda, since the addenda often change them.

If you are preparing an offer and want the contingencies drafted to fit your financing and your timeline, a consultation with Capitol Law Partners can get the deadlines right before you sign. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

Need help with this topic? See our real estate contract negotiation page or schedule a consultation.