In real estate contracts, what does contingency mean?

In real estate contracts, a contingency refers to a specific condition or set of conditions that must be met in order for the contract to become fully binding. This means that the agreement depends on certain events taking place or certain criteria being satisfied. Common examples include contingencies based on the buyer obtaining financing, the property passing a home inspection, or the sale of the buyer's current home. If these contingencies are not met, the parties may be able to terminate the contract without penalty.

This understanding is crucial in real estate transactions, as contingencies protect the interests of both buyers and sellers by allowing for certain checks and balances before finalizing the sale. The clarity and specificity of contingencies can significantly affect how smoothly a transaction proceeds and reduce the risk of disputes later on.