Contingencies can protect buyers from nasty surprises

Key takeaways

• Homebuyer contingencies are contract clauses that allow buyers to exit a deal and keep their deposit if specific conditions aren’t met, such as financing denial, a low appraisal, major repair issues or title problems.
• Common contingencies include appraisal, financing, home inspection, home sale, title, septic and homeowner association or condo document reviews, each designed to protect buyers from financial or legal risk but potentially making offers less competitive in hot markets.
• When a contingency fails, buyers and sellers can often renegotiate through price reductions, credits, repairs or timeline extensions, with market conditions playing a major role in how much leverage a buyer has.

Imagine getting your offer on a house accepted only to discover that it's infested with black mold or termites. Or finding out your lender will not approve your mortgage application. Or discovering the house is worth less than you’re paying.
Can a buyer get out of these sticky situations? Yes, they can withdraw from the deal if they have added contingencies to the deal that nullify a sale if something goes wrong, letting the buyer keep their home deposit.

Real estate professionals advise buyers to write contingency clauses into the purchase contracts to protect themselves.

But buyers will have to weigh the downside: In a competitive market, sellers might be more inclined to work with a buyer without such restrictions.

Contingencies can be based on many conditions. Let Homes.com walk you through the most common ones.

An appraisal contingency gives the buyer the right to cancel the contract if the home’s appraised value comes in at less than the agreed-upon selling price.

Contingencies ensure the property is valued at a price that supports the loan amount, protecting buyers from overpaying and banks from overlending by giving them the option to renegotiate or withdraw if the appraisal is low, said Christopher Hall, an agent with Coldwell Banker Warburg in New York.

Jessica Vance, who owns Jessica Vance Real Estate and Mortgages in San Diego, said appraisal contingencies are a basic clause included in contracts to buy a house.

"In most transactions, a borrower is putting anywhere from 0% to 30% down," she said. "That leaves the remaining 70% to 100% that the bank is taking a risk on via lending on. The bank wants to ensure the house is worth the loan amount, she said. If it's not, the buyer is paying more than the house is worth.

A low appraisal doesn't have to end the deal. Buyers and sellers can negotiate a new price for the house.

A financing contingency cancels the sale without penalty if a buyer can’t get approved for a mortgage. “There are very few situations where this type of contingency shouldn’t at least be considered by the buyer,” said Darren Robertson, founder/agent of Northern Virginia Home Pro in the Washington, D.C. region.

The downside for the seller is that if financing falls through, they will have to relist their home.

A home sale contingency is designed to protect prospective buyers who need to sell the home they are living in by a certain date in order to purchase the new home. If the current residence fails to sell within that time limit, the buyer is not obligated to go through with purchasing the new property.

“Unlike other contingencies, this one can be a bit complicated,” Robertson said. Sellers are entitled to prioritize offers from buyers who don’t have this condition. But it’s worth considering if there’s a possibility that your home may not sell in time, he said.

Sometimes sellers include a similar contingency in the contract. One such clause allows the seller to withdraw if they're not able to purchase their new home before the current one sells.

A title contingency protects buyers when the property has a lien on the title — meaning there's an unpaid debt that the seller must take care of. The purpose is ensuring the home has a “clear” title recorded with the local county government, according to Ledeana Strand, a broker and team leader with Homes by Strand in Port Orchard, Washington.

A title lien slows down the transaction and runs the risk of a contract falling through.

A home inspection contingency means a buyer will not go through with purchasing a property unless a professional home inspector has submitted a report saying the home meets expectations — that there are no expensive repairs that must be made, like a new roof, plumbing or mold problems. Every purchase contract should have one, Robertson said.

“Generally speaking, any pushback from a seller regarding an inspection contingency should be viewed as a red flag,” he said.

A poor inspection report doesn’t necessarily sink the purchase agreement, said David Sokolowski, a real estate broker at Coldwell Banker Warburg in New York.

“At the very least, having this option helps a buyer with negotiating a seller’s concession toward the cost of repairs or renegotiating the purchase price of the property," he said.

Buyers also should consider if they want the house bad enough to pay for repairs.

Some rural jurisdictions have septic contingencies to give buyers peace of mind that the system works. A typical septic inspection checks the tank, distribution box and drain field, according to a 2025 blog by Lange, Quill & Powers, PLC, a real estate law firm in Newport, Kentucky. Inspectors look for signs of damage, blockage or overflow.

"You want to know the system handles daily waste safely," the firm said. "If it’s failing, cleanup and repair costs fall on the property owner — meaning you, after closing."

A septic contingency is "nonnegotiable" for properties without municipal connections, said Donnell Williams, a broker with NextHome Prime Properties in Fort Washington, Maryland. “Rural property buyers must never disregard this essential condition,” he said.

Some jurisdictions require builders to get a septic system assessment of undeveloped land before any construction work begins, because it determines if the parcel is suitable for a system, he said.

A homeowner’s association or condominium resale package review contingency is also important, Williams said. Maryland law gives homebuyers a seven-day period to review HOA documents and a five-day period for condo documents after receiving the sale documents, he said. Buyers can determine if the community is the right match for them.

“You can cancel your purchase without any issues when you discover HOA restrictions on basketball hoops or excessive condo parking fees amount to $600 a month,” he said.

Contingencies may seem hard to understand, Robertson said, but they're worthwhile.

"Many buyers hear the term contingency and think, ‘Great! Another complicated phrase to wrap my head around,’" he said. "So, I think it’s important to offer a simple definition as soon as you can. I often refer to them as ‘guarantees that you’re getting what you’ve agreed to pay for.’”

How a buyer can respond when a contingency is not metA failed contingency doesn't have to end a deal. Buyers and sellers can negotiate terms of an agreement — for example, to cover the cost of repairing defects turned up in a home inspection. Always consult your agent to discuss what you are willing to negotiate before starting. Several market circumstances can give buyers more negotiating power in case of a failed contingency.

Buyers can ask sellers for several forms of compensation. They could seek a lower sales price, for example. Buyers could ask for credit at closing — perhaps a small percentage of the sales price — in the form of cash or payment of closing costs. Sellers typically do not pay the down payment for a home.

If a home has been on the market for a long time — more than 30 days — a seller may be more willing to negotiate. If there are more sellers than buyers — known as a buyer's market — a seller may not want to risk relisting the home.

Here's some options buyers can choose for responding to different kinds of contingencies:

• Ask seller for more time to apply to another mortgage lender
• Ask seller to reduce the price of the house so it is more affordable
• Ask if seller is willing to finance the sale themselves
• Ask if seller is willing to enter a rent-to-own contract

• Negotiate a new contract to sell the home at the appraised value
• Pay the difference between the sales price and appraised value
• Review the appraisal for inaccuracies
• Get another appraisal on the property
• Use another lender, who often will use a different appraiser

Pro tip: Make sure an appraiser is licensed and has experience in the neighborhood/community where the home is located.

• Verify the lien
• Determine if the lien holder is willing to reduce or forgive the amount
• Pay off the lien or negotiate a lower price for the home
• Ask if the seller can pay the lien before closing
• Negotiate a new price with the seller to cover the cost of the liens

Pro tip: Get an inspection early in the closing process to find issues and give yourself time to negotiate a solution.

• Ask if the seller is willing to make the repairs
• Ask if the seller is willing to reduce the price of the house to cover repairs
• Choose to ignore any cosmetic repairs to the home that are not critical to occupancy
• Consider whether to buy the home and making the repairs yourself

• Ask seller to give you more time to find a buyer

More on this topic:

• What does contingent mean?
• How appraisals help buyers and lenders avoid costly mistakes