What is a Contingency?

What is a Contingency?

A contingency can be thought of as an exception in a real estate contract (a kind of, “I will do this, if you do that” or “if you don’t do this, I won’t do xyz”). For example: We will buy this property if the roof is in good condition. We will buy this property if our bank approves our mortgage. If the bank doesn’t approve our mortgage, then our good faith deposit will be returned to us within 5 business days. If something isn’t completed as agreed to, then the buyer has the right to cancel the agreement or renegotiate it. If a contingency isn’t spelled out in a contract, then the other party can’t arbitrarily cancel the contract.
As an example, a buyer and seller enter into a contract to sell a building for a $1M cash. Even though the buyer has the cash to buy the building, they decide to pay to have a 3rd party appraise the property. When the appraisal comes back, they learn the building is only worth $900,000. The buyer tells the seller they won’t proceed with the sale due to the appraised value being less than the agreed upon price. Since the building appraising for $1M wasn’t a contingency in the agreement, the buyer doesn’t have the right to cancel the agreement.

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