Contingency - A condition in a contract that has to be fulfilled before the contract is binding. - Encarta
When Buyers make offers on homes they wish to purchase, there are usually several contingencies that need to be met for the contract to be fulfilled. The normal ones are for Financing and Appraisals. These contingencies are put in the contract to protect the buyer in case their financing falls through or the home they want does not appraise for the value agreed upon between the buyer and seller.
If the financing falls through within your contingency time line, normally around 21 days from binding contract date, the buyer may terminate the contract and receive their earnest money back. Same holds for the appraisal. If it comes back lower than anticipated, and the buyer and seller cannot agree on a new price, again usually within 21 days or whenever the contingency period is within the contract, the buyer may terminate and receive their earnest money back.
These two contingencies usually do not cause problems and again are there for the protection of the buyer.
The contingency that I struggle with is the one that requires the buyer to sell a property before buying the new one. Sellers dislike these contingencies because of the unknowns involved. Will the buyers home sell in time for their home to close? Many sellers will not accept an offer contingent on the sale of a home unless it is already under contract.
Home sale contingencies make for weaker buyer offers as well. This can be partially overcome by offering full or close to full price for the new home and not asking for much more.
Contingencies usually come with time frames. At a particular set time, if the contingency is not met, the contract may fail and be terminated. At other times, if the failure happens after the time frame has lapsed the buyer might be in danger of terminating the contract and losing their earnest money. This is why your real estate professional will pay close attention to these time frames.
When getting ready to buy or sell, make sure you understand contingencies.