A contingency clause, in the context of real estate, refers to conditions attached to an offer to purchase property and included in the real estate contract which must be met in order to make the purchase offer binding on the buyer. For example, some of the more common contingency clauses are house sale contingency clauses, subject-to-financing clauses, and subject-to-inspection clauses.
A house sale contingency clause allows home buyers time to sell their present house in order to finance a new one. A seller would prefer to get a definite commitment from a buyer, but may be more likely to accept this condition when the property has been on the market for an extended time.
The subject-to-financing clause allows the buyer to make an offer to purchase before knowing what financing terms they are able to obtain. In this case, the buyer is assured that unless they are able to secure the loan, mortgage terms, and maximum interest they are willing to pay, they may legally withdraw their offer.
The subject-to-inspection clause allows the buyer to change the terms of the offer if a serious defect is uncovered by a professional inspection of the home. The inspection may be of the entire house or just a certain part, such as a septic system. The buyer is typically required to pay for the inspection, but if defects are discovered, the repair costs can be included when the offer is modified.
There are many other types of contingency clauses which may be written into the contract. Some standardized contracts contain contingency clauses, others are drafted by attorneys. Contingency clauses should satisfy the concerns of both the buyer and seller. Examples of some of the other types of contingency clauses that may be included, among others, are subject to attorney approval clauses, subject to building code approval clauses, and subject to condominium association approval clauses.