What is a contingency in a home sale?

A contingency is an "if" in the contract. The sale goes ahead if something checks out. If it doesn't, the buyer or seller may be able to step away. They may also change the deal. Each check has a name and a deadline.

What does a contingency do?

Think of it as a pause button with a timer. After the buyer and seller sign, the buyer usually still has things to check. The contract says what they can check. It also says how long they have.

NAR says the buyer and seller both have to agree to each contingency. Both sides also have to sign off on it. Each one has its own deadline.

What are the common contingencies?

These come up most often:

• Inspection. The buyer pays an inspector to look at the house. The inspector checks what shape it's in. The buyer may ask for repairs before closing.
• Appraisal. An appraiser estimates what the home is worth. The buyer's lender usually wants that number to match or beat the price. The CFPB says an appraisal is for the lender. It doesn't replace a home inspection.
• Financing. The buyer gets a set time to line up a mortgage.
• Title. A title search checks who owns the home. It also checks for old loans or other claims.

Some contracts add other contingencies. An insurance contingency gives the buyer time to get homeowners insurance before closing. An HOA contingency gives them time to read the HOA's papers. That includes its money records. There's more on each in our glossary: inspection contingency, appraisal contingency and financing contingency.

What happens if a check goes badly?

If a contingency isn't met by its deadline, the deal can change. NAR says the buyer or seller may be able to cancel without penalty. Both sides must have acted in good faith. The contract sets the exact rules.

Often, the sale doesn't end. NAR lists a few ways common problems can play out:

• A low appraisal. The price can come down. The buyer can pay the gap in cash. They can also ask for another review of the value.
• A title problem. Liens or ownership disputes have to be cleared up before the sale can go on.
• An inspection that finds repairs. The buyer can ask for repairs. The two sides can then negotiate.

What happens depends on the contract and what both sides agree to.

Is a contingency the same everywhere?

No. Contracts differ. Deadlines differ. State rules differ too. In some states, NAR says an attorney-approval and inspection period lets either side cancel without penalty. In most states, sellers also give the buyer a property condition disclosure. It lists problems the seller knows about.

Our home selling timeline shows where these checks fall in the order of a sale. If you'd like the dates and papers in one place, our guide to organizing a home sale covers it. This post comes after how selling a house works.

What is a contingency in plain words?

It's an "if" in the contract. The sale goes ahead if a check, like an inspection or an appraisal, turns out okay. The contract names each check and gives it a deadline.

Can a buyer back out because of a contingency?

NAR says that when a contingency isn't met within the contract's time, the buyer or seller may be able to cancel without penalty, if both sides acted in good faith. The exact right depends on the contract and the state.

What if the appraisal comes in low?

NAR lists the usual outcomes: the price comes down, the buyer brings extra cash, or the buyer asks for another review of the value. What happens is a matter for both sides to agree on.

Who pays for a title search?

Our sources don't say who pays, and that varies. NAR notes that lenders typically want a title search, and buyers typically pay for the lender's title insurance. The contract and your title company can say who pays what.