What does the term "contingency" mean in real estate?

In real estate, the term "contingency" refers to a condition stipulated within a contract that must be fulfilled for the agreement to move forward or for it to remain valid. This means that certain actions or events must take place before the transaction can be completed. Common examples of contingencies include obtaining financing, passing a home inspection, or the sale of the buyer's current home. If these conditions are not met, the buyer or seller may have the legal right to back out of the contract without penalties.

Understanding contingencies is crucial for both buyers and sellers, as they help protect the interests of all parties involved in the transaction. Each contingency is a safeguard to ensure that the buyer is confident in their purchase and that the seller can still move forward if a buyer fails to meet the agreed-upon terms.