Ask the expert: What are contingencies in a real estate deal?

A contingent offer is a standard way that buyers agree to purchase a home if certain conditions are met. If the conditions are not met, then the buyer can back out of a sale.

For example, the home inspection is the most common contingency. Most buyers are not willing to spend money on inspections unless they can back out of the purchase or renegotiate it at the end of the process.

A home inspection can reveal all sorts of problems, from mold to bad floor joists. It is one contingency that is nearly always made on a sale.

A mortgage contingency is also common. This protects the buyer and the seller from a situation where the buyer can’t get a loan to cover the sale price. The buyer has a certain amount of time to get a loan. He may think he has the mortgage lined up, but things happen. If he can’t get a lender to agree to the loan, then the buyer can back out of the agreement. This wastes everyone’s time, and there is also an appraisal contingency.

The appraisal contingency is good for the buyer because it helps ensure the property is worth what he is paying for it. In this case, a lender hires a third party to put a value on the property. If the value is less than the buyer is paying, then the buyer can cancel the deal.

You might hear of non-contingency deals in hot real estate markets.

These can be very risky for buyers and sellers.

You might hear of them in a case where the price is low, and the buyers have cash. In this situation, the buyers sign the contract without an inspection. It is somewhat risky for the seller because the buyers could sue if something dramatically wrong with the property. On the other hand, it is terribly risky for the buyer because they don’t know the property’s pitfalls.