Contract Contingencies

When you start the process of searching for a new home or putting your home up for sale, you have probably heard your real estate agent use the term “Contingency” when it comes to the contract details.  But what is a contingency and what does that mean for you?

A contingency clause is a contract provision that requires a specific event or action to take place in order for the contract to be considered valid.

Depending on your situation and your offer terms, you may have several contingencies, but here are the three most common contingencies you will see in the Northern VA residential sales contract:

1.  Home Inspection Contingency

The purchaser requests to do a home inspection and it has to be done in ‘X’ number of days after the contract is ratified (signed by all parties). The Home Inspection Contingency Addendum has two options.  The buyer can do the home inspection and negotiate repairs with the seller or void the contract. The second option is that the buyer can do the inspection but they cannot ask for repairs, they only have the right to void.  In a really competitive market, the buyer could also opt to remove the home inspection contingency outright.

2.  Appraisal Contingency

This contingency requires that the appraised value of the home be equal to or greater than the sales contract price.  Why is this necessary?  The lender will not loan the purchaser more money than the home is worth.

If the value comes in lower than the agreed upon price, a new round of negotiations may begin or the buyer may void the contract. However, if the buyer still wants to purchase the home and the seller won’t lower the price, the buyer can choose to bring extra cash to closing to cover the difference between the contract price and the appraised value.

3. Finance Contingency 

In simple terms, if after you are under contract on a home and your loan is not approved by the lender,  you can void the contract without losing your earnest money deposit.

*Note! The type of financing that you put into the contract (specified financing), is the type of loan that your lender has to reject.  For example, if your offer stated that you were going to get an FHA loan and put 20% down, you can’t switch to a Conventional Loan and put 3% down without getting the seller’s permission in writing first.  If you switch your specified financing without getting the seller’s permission, you automatically remove this contingency. Which means, if your loan is denied and you void the contract, you will most likely lose your Earnest Money Deposit.


It is extremely important for you to read the contract prior to making an offer on a home, and discussing the details with your agent beforehand. Understanding these options before you get emotionally invested in a house is essential to making an informed decision. I am always available to answer any questions you have and would love to be a resource you can count on.


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