Contingencies are quite valuable.  So, we like to see them as the diamond in the real estate purchase contract.  We see a home buyer’s contingencies as diamonds in a nice setting comprised of all the other elements of the real estate purchase contract.  They include such features as the address and description, the earnest money, the terms of the sale, the dates of the final walk-through and the closing plus of course, the mutually agreed-upon sale price.  However, today’s blog is not about these

Contingencies:  A Homebuyer’s Dealmakers or Heart Breakers

Contingencies can protect you from major mistakes.

“How Do I Protect My “Ernest Money?”


Thus, if we compare buying a diamond ring to buying a house, the elements are the setting.  The homebuyer’s contingencies are symbolized by the multi-faceted diamond in the setting.  Taken altogether, the “ring” is the real estate purchase contract.

And it fiscally marries together the homebuyer and the home, usually for 20 or 30 years or for as long as the homebuyer stays with the home.

The home buyer’s contingencies are extremely valuable to the homebuyer.  And Palm State Mortgage Company will show you why in this week’s blog article.

Let’s take a look at the different types of contingencies that can be included in a real estate purchase agreement.  We will also view why these contingencies are so important to you as a home buyer.

Contingency?  What Does That Mean?

A regular definition of the word contingency might be “a future event or circumstance that is possible but cannot be predicted with certainty.”  It’s the same way with home buying contingencies.

With a contingency in place, you give yourself a way out of a house buying situation if a certain situation arises.  That’s why some old school real estate agents called contingency clauses “weasel clauses.” 

Buyers could weasel out or slip out of a contract situation with no foul.  Plus, they would get back their earnest money deposit after canceling the deal.

Contingencies Exist on a State by State Basis

As always, in our blogs, Palm State Mortgage Company reminds you that, there are variances of laws in different states.

1.  On this blog, we try to hold with the Florida laws.  And it’s true that many contingencies are common to every state.  However, if you are buying property out of state, you might want to check the laws of that state for details.

2.  Therefore, we have established that, for our purposes in this blog, a real estate contingency is a condition that the sellers must obey in order to make the deal work. (You see, we are looking at it from the buyer’s point of view.) Likewise, a contingency is a requirement without which there will be no sale.

The Most Common Deal Breaking Contingencies

Did you know there is no limit about how many contingencies you can pack into your otherwise very standard sales contract?

However, you must understand that each contingency might decrease the likelihood the seller will keep the deal with you.  Let’s take a look at some of the most common purchase contingencies.

The Hot Home Inspection Contingency

Be sure needed contingencies are included in the Purchase Contract.

“The Kitchen Wall Just Collapsed During the House Inspection.”


You need to at least include this one in your real estate sales contract.

The “home inspection contingency gives home buyers a legal “out” if they are unhappy with the results of the inspection.”

We are not talking about little property flaws like a leaky faucet.  We mean complex repairs and fixes that require significant effort, labor and money.  This is the area you need to watch for things like major foundation cracks, molded basements and bad septic tank lines.

This contingency would permit you to break the deal if the home inspection process uncovers something unexpected.


The Loan Financing contingency

Let’s face it, Homebuyers must use a mortgage loan to buy a house. This type of purchase contract contingency means that if the mortgage financing falls through, the buyer is not responsible for buying the house.  It might go down like this:

The buyer gets preapproved.  He makes an offer. The seller accepts the offer.  A week later, the lender’s underwriter finds problems with the application file.  Poof!  Your loan is denied.

As we said previously, home buyers use mortgage loans to cover the cost of their purchase or at least a big chunk of it.  Now, without the contingency, if the loan does “fall through,” the buyer could forfeit substantial dollars.

With the “what if” clause, if the loan is turned down, the buyer is protected.  In such cases, the buyer must exit from the purchase contract.  But he gets avoids penalties.

What Happens Next?

Sale of Current Home –  Very unpopular with the sellers, this provision states you will buy the buyer’s home provided the sale of your own home is successful.  “This provision makes the sale contingent (or dependent) upon the successful sale of the buyer’s current home.  If the buyer is unable to sell his/her current property, they have a legal way out of the purchase contract.”

Typically, sellers will accept this only as a last resort. (In a competitive market where buyers are competing for limited inventory, this type of purchase contract protection can work against the buyer.)

The Amazing Home Appraisal Contingency– As you might know, Mortgage lenders use home appraisals to see that the property is worthy of the dollar amount the buyer has agreed to pay.

Sometimes the home appraises for less than the purchase price.  A home appraisal contingency gives you the opportunity to renegotiate the purchase price or walk out of the deal completely.

Clear Title –

Insisting on Impossible Conditions Could Lose you - Your Dream House.

“We Love Our New Home.”

Please refer to our most recent post for an in-depth look at what is meant by a “clear title.”

Basically, the title is a legally binding document that discloses who has owned a home in the past and who owns it now.  A title company will check the title to make sure it is “clear” of liens, disputes or other issues.  Title contingencies give buyers a way out of the contract if a problem is found.  Keep in mind some issues can be solved before final closing.  However, if the problem can’t be fixed, buyers can walk away from the deal.

Thus we have seen 5 deal breaker contingencies in this blog.  Again we stress that there are others, but these are major ones.

Palm State Mortgage cautions you that these contingencies can make your offer less attractive to the seller.  It all depends on how hot the home market is and how many people want the house you love.