You've probably heard that phrase more than once. A contingency is like having a "what if scenario":
- What if I made an offer and my other house doesn't sell, I can't afford 2 mortgage payments?
- What if the house doesn't appraise for the contract price?
- What if I find out there is a leak in the foundation after I've already signed the contract?
- What if the interest rate goes higher than I can afford
That's what a contingency is for. It is a clause in the contract that says if for example You find out the house is really a money pit during your home inspection, you can walk away from that contract and not lose any earnest money you may have put down on that contract. The contingency is an insurance policy of sorts that protects you for the just in case you are most concerned about.
Your Realtor will include that contingency into your offer to purchase by adding an addendum or actually writing it in to the offer itself. Just remember it has to be included in the beginning when the offer is written.
So think about that when you are looking at homes being sold "as is". The seller is not likely to accept many or any contingencies and your earnest money of $1000-5000 could be in jeopardy.