What does "contingency" mean in real estate contracts?

In real estate contracts, a "contingency" refers to a specific condition or requirement that must be fulfilled for the contract to become legally binding. This means that the agreement is dependent on certain events or conditions occurring, and if these contingencies are not met, the parties may have the option to terminate the contract without penalty.

Common examples of contingencies include financing contingencies, which ensure that the buyer secures a loan; inspection contingencies, which allow the buyer to conduct an examination of the property; and appraisal contingencies, which require the property to be appraised at or above a certain value.

Understanding contingencies is crucial for both buyers and sellers as they outline the obligations and protections involved in the transaction. It allows buyers to safeguard their interests, ensuring they don't proceed with a purchase unless specific, agreed-upon conditions have been satisfied.