Mortgages & Home Loans Real Estate Resources Types of Contract Contingencies for Homebuyers By Elizabeth Weintraub Elizabeth Weintraub Facebook Twitter Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV's House Hunters. learn about our editorial policies Updated on November 28, 2021 Reviewed by Doretha Clemon Reviewed by Doretha Clemon Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder. learn about our financial review board Fact checked by Julian Binder Fact checked by Julian Binder Julian Binder is a fact checker, researcher, and historian. They were the recipient of the North American Studies Book Prize (2016, 2017), and they have previous experience as an economics research assistant. They have also worked as a writer and editor for various companies, and have published cultural studies work in an academic journal. As a fact checker for The Balance, Julian is able to utilize their experience as an editor and economics research assistant. Their role as fact checker is to review articles for accuracy, update data as needed, and verify all facts by citing trusted sources. learn about our editorial policies In This Article View All In This Article Monetary Contingencies Inspection Contingencies Health-Related Contingencies Other Contingencies Photo: Paul Bradbury / Getty Images Contract contingencies are common in real estate transactions and are no longer viewed as skeptically as they were in the 1970s when some real estate agents called them "weasel clauses." Contingencies allow prospective homeowners to cancel a contract without penalty get back their earnest money deposits. Contingencies reduce risks for buyers, and what is allowable varies from state to state. Your state might make a big deal out of a septic inspection, for example, because it could cost many thousands of dollars to replace a faulty septic system. However, many contingencies are common to every state. Key Takeaways Contract contingencies allow homebuyers to cancel a purchase contract if specific conditions are not met.Most states have common contract contingencies, but each state can have some specific to the geography and demographics of the area.Contingencies are usually health-related or for expensive repairs that a home could need, such as replacing a roof or the septic tank. Monetary Contingencies Buying a house is a multistep process. Many of the steps do not take place until after an offer has been accepted. New information or new obstacles can create problems for buyers or sellers, so contingencies typically are a simple matter of ensuring that each step of the process goes as planned or as expected. These contingencies release buyers and sellers from a contract if there are problems with finances. Appraisal Mortgage approval typically includes an appraisal to substantiate the purchase price of the home. A low appraisal could derail a sale by negatively impacting the lender's willingness to approve the desired mortgage amount. Loan Contingency Further investigations concerning the property or the borrower sometimes result in denial of a mortgage application—even if the buyer has a loan preapproval letter. Some loan contingencies run through to closing, and other types might only exist for a few weeks. Tip You should consult with a licensed real estate agent to understand how specific contingencies are handled in your state. Contingent on Selling Existing Home Buyers who have an existing home might want to buy before selling and make the contract contingent on selling their home. Sellers who accept contingent offers like this often give potential buyers a certain number of days to perform. If a buyer cannot perform, sellers retain the option to cancel the contract. Concurrent closings can be tricky—but not impossible—in the right hands. Inspection Contingencies These common contingencies focus on the condition of the house and property to make sure there are no damages or safety issues that need to be dealt with, as well as investigating the title. Preliminary Title Report Title investigations disclose easements, monetary liens of record, including the ability of a seller to transfer clean title to a buyer, and covenants, conditions, and restrictions (CC&R) information. If you can, always order a title insurance policy. For example, you might discover an easement falls on the property line right where you want to build a fence or put in a pool. That could be grounds for the cancelation of the contract. Note Title insurance for the lender is part of closing costs. You can also purchase it to protect you from financial loss if there is a claim or defect on the property title. Home Inspection Buyers have the right to hire a home inspector and conduct a complete inspection of the home. If a buyer issues a request for repair, the seller must receive a copy of the home inspection. In some states, sellers are entitled to a copy of the inspection results, whether a request for repair is issued or not. Wood-Destroying Pest Inspection The contract should specify who pays for a pest inspection and whether outbuildings or garages are covered during the inspection. If pests or dry rot conditions are noted, there could be an additional expense to negotiate. Roof Inspection Many home inspectors will not walk on a roof due to the possibility of damage and liability if the roof is damaged, so some buyers hire a separate roofing company to conduct a roof inspection. Warning Be cautious about hiring a roofing company to do an inspection—they are in the business of replacing roofs. It isn't unheard of for a roofing company to state a roof needs repairs just to get the business. Sewer Inspection Sewers can get clogged from tree roots or deteriorate over time. Plumbing companies can insert a camera into a sewer line to check for damage during a sewer inspection. This is an expensive repair, so it's better to have this inspection done before you buy a home rather than after. Health-Related Contingencies Part of inspection contingencies, these inspection focus on common health problems in older homes or specific inspections. These are the most common health-related contingencies. Radon, Mold, or Asbestos Inspections Depending on a visual inspection, sometimes home inspectors will call for additional inspections by licensed entities to check for special situations, such as radon gas, mold, or asbestos. Remediation or removal of these defects is generally expensive. Lead-Based Paint Federal laws give all buyers ten days to inspect for lead-based paint. Many homes built before 1978 contain lead-based paint. Private Well Inspections If a home has a private well, buyers may want assurance that the water is potable and meets acceptable health standards. A well inspection also delivers information on how fast the water can be brought to the surface. If a well does not pass inspections, it is not unreasonable to ask a seller to remedy the situation. Note You can make contingencies for nearly any concern you have for a property, so check with your agent before the contract is written to see if you can add your concern. Other Contingencies Some states have specific disclosures that must be documented. These contingencies ensure the homebuyer knows everything about the history of the property and any associations they become part of by purchasing it. There might also be some agreements between the buyer and seller that are common in some areas. Homeowners Association Documents Buyers should obtain a copy of all homeowners association documents for review, including meeting minutes, if applicable. Pay special attention to the homeowners association (HOA) reserves. A deficiency in the reserves could be a red flag that the HOA is in financial trouble, or the HOA dues might be in line for a steep increase. Seller Statutory Disclosures Sellers in California are required to disclose all known material facts, including preparing and delivering a transfer disclosure statement (TDS), natural hazard disclosure statement, special taxes, and statutory supplemental questionnaire. This paperwork is part of a buyer's inspection contingency. Early/Late Occupancy Agreements Contracts can be contingent upon a buyer and a seller entering into a written agreement that allows the buyer to rent the property before the close of escrow. This is known as early buyer possession. It also is common in many areas for sellers to stay a few days after closing. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. United Sates Environmental Protection Agency. "Real Estate Disclosures About Potential Lead Hazards." California Association of Realtors. "Seller Property Questionnaire." State of California Department of Real Estate. "Disclosures in Real Property Transactions," Pages 2, 10-11. California Department of Real Estate. "Information for Homebuyers."