When you buy or sell a home, the purchase agreement often includes contingency clauses. These are conditions that must be met for the sale to go through. If these conditions aren't met, the buyer or seller can usually walk away from the deal without losing money.

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Here are the most common contingencies: 

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1️⃣ Home Inspection Contingency

This lets the buyer hire a professional inspector to check the home for issues — like mold, roof damage, plumbing problems, or foundation cracks. If major issues are found, the buyer can either ask the seller to fix them, negotiate a lower price, or cancel the contract.

💡 Why it matters: Even beautiful homes can have hidden problems. An inspection gives you peace of mind and a way out if serious repairs are needed.

✅ Example: The inspector finds major termite damage. The seller refuses to fix it, so the buyer cancels the deal.

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2️⃣ Loan Contingency

A loan contingency is a clause in a real estate purchase agreement that protects the buyer in case they’re unable to secure financing for the home.

This clause sets a specific deadline by which the buyer must obtain formal mortgage approval. If the buyer is denied a loan before that date, they have the right to cancel the contract and get their deposit back — without any penalty.

✅ Why it’s important:

• Most buyers rely on financing to purchase a home.

• If the loan is denied due to credit issues, income verification, or appraisal problems, this clause ensures the buyer isn’t forced to move forward with the purchase or lose their earnest money deposit.

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3️⃣ Appraisal Contingency

Most lenders require an appraisal to confirm that the home is worth the price being paid. This clause protects the buyer if the home appraises for less than the offer price. The buyer can back out or renegotiate with the seller.

💡 Why it matters: Banks won’t lend more than a home is worth. If the appraisal is too low, this clause gives the buyer options.

✅ Example: A home is under contract for $950,000, but the appraisal comes in at $900,000. The buyer asks the seller to lower the price — or walks away if the seller says no.

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4️⃣ Title Contingency

This gives the buyer the right to review the property’s title to ensure it’s clear. That means no unpaid taxes, liens (legal claims for money), or disputes over who really owns it. If any issues are found, the seller must fix them before closing. If not, the buyer can back out.

💡 Why it matters: You want to make sure you're buying a home that truly belongs to the seller and won’t come with legal problems.

✅ Example: A title search reveals a lien from unpaid contractor fees. If the seller can’t clear it, the buyer can walk away.

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5️⃣ Sale of Current Home Contingency

This is helpful for buyers who need to sell their current home before they can afford to buy a new one. It gives them a deadline to sell their home. If they can’t sell it in time, they can cancel the purchase of the new home without penalty.

💡 Why it matters: It protects buyers from ending up with two homes (and two mortgages!) at once.

✅ Example: The buyer lists their home but doesn’t get an offer before the deadline. They use this contingency to cancel the contract.

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6️⃣ Homeowners Insurance Contingency

This states that the buyer must be able to get home insurance coverage before the deal can close. If they can’t (due to fire risk, flood zones, or other issues), they can cancel the contract.

💡 Why it matters: Lenders usually require insurance before funding a loan. And as a homeowner, you want to protect your property.

✅ Example: The buyer learns the home is in a wildfire-prone area and can't get affordable insurance. They use this contingency to back out.

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