Understanding Contract Contingencies in Northern Virginia

When you begin searching for a new home or preparing to sell, you will likely hear the term contingency used during contract discussions. While it can sound intimidating, contingencies are simply tools that help protect buyers and sellers during the transaction.

A contingency is a provision in the contract that requires a specific condition to be met in order for the contract to move forward. If that condition is not met, the contract may be renegotiated or voided, depending on the terms.

While contracts can include several contingencies, the following are the three most common ones you will see in a Northern Virginia residential sales contract.

1. Home Inspection Contingency

The home inspection contingency allows the buyer to have the home professionally inspected within a specified number of days after the contract is ratified.

There are typically two common approaches. In one, the buyer completes the inspection and may negotiate repairs or request to void the contract based on the findings. In the other, the buyer completes the inspection but agrees not to request repairs and only retains the right to void the contract if they are not comfortable moving forward.

In highly competitive markets, some buyers may choose to remove the inspection contingency entirely. This is a significant decision that should be carefully considered and discussed in advance.

2. Appraisal Contingency

The appraisal contingency protects the buyer if the home does not appraise at or above the contract price. Lenders base loan amounts on the appraised value of a property, not the agreed upon sales price.

If the appraisal comes in lower than expected, the buyer and seller may renegotiate. If an agreement cannot be reached, the buyer typically has the option to void the contract. In some cases, buyers choose to proceed by bringing additional funds to closing to cover the difference between the appraised value and the contract price.

3. Financing Contingency

The financing contingency allows a buyer to void the contract without losing their earnest money deposit if their loan is not approved by the lender within the agreed upon timeframe.

It is important to understand that the loan type specified in the contract matters. The lender must deny the exact type of financing stated in the agreement. If a buyer changes loan types or terms without written seller approval, this contingency may no longer apply.

Understanding this detail is critical, as changing financing terms without proper approval can put a buyer’s earnest money at risk.

Final Thought

Contracts can feel overwhelming, especially when emotions are involved. Taking the time to review and understand contingencies before making an offer helps you make informed decisions and avoid unnecessary surprises.

I always encourage clients to ask questions and discuss contract details in advance so they feel confident and prepared. If you would like to walk through any part of the process or review options together, I am always happy to help.