What are contingencies?

When buying or selling a home, you may hear the word "contingency" used.

Contingencies are conditions that must be met in order for a home sale to be finalized. Depending on which party arranges for contingencies, they act as an additional measure of assurance for the buyer, seller or both. If they are not met, it is likely that the sale with not be closed.

Homebuyers often include a contingency dictating that the seller provides and pays for a thorough home inspection before the sale is completed. In some cases, buyers have a contingency that they will not purchase the home if they cannot receive financing.

Some real estate agents advise against including contingencies, as they can be a turn off for prospective buyers and sellers. In a more competitive market, it may be best to avoid them. In the case of a property inspection contingency, sellers may not want to shoulder the cost. With regard to financing, sellers may be apprehensive, as they risk wasting time with a buyer who is eventually unable to pay for their home.