Contingency Clauses In Home Purchase Contracts


Inspection Contingency: 

An inspection contingency (also called a “due diligence contingency”) gives the buyer the right to have the home inspected within a specified time period, such as 5-7 days. It protects the buyer, who can cancel the contract or negotiate repairs based on the findings of a professional home inspector. An inspector examines the property’s interior and exterior, including the condition of electrical, finish, plumbing, structural, and ventilation elements. The inspector furnishes a report to the buyer detailing any issues discovered during the inspection. Depending on the exact terms of the inspection contingency, the buyer can:

  • Approve the report, and the deal moves forward
  • Disapprove the report and back out of the deal (and have the earnest money returned)
  • Request time for further inspections if something needs a second look
  • Request repairs or concession (if the seller agrees, the deal moves forward; if the seller refuses, the buyer can back out of the deal and have his or her earnest money returned)


Financing Contingency: 

A financing contingency gives the buyer time to apply for and obtain financing for the purchase of the property. This provides important protection for the buyer, who can back out of the contract and reclaim his or her earnest money in the event he or she is unable to secure financing from a bank, mortgage broker, or another type of private lending. A financial contingency will state a specified number of days that the buyer has to obtain financing. The buyer has until this date to terminate the contract (or request an extension that must be agreed to in writing by the seller); otherwise, the buyer automatically waives the contingency and becomes obligated to purchase the property – even if a loan is not secured.


Appraisal Contingency:

An appraisal contingency protects the buyer, used to ensure a property is valued at a minimum, specified amount. If the property does not appraise for at least the specified amount, the contract can be terminated and the earnest money, in many cases, is refunded to the buyer. An appraisal contingency may include terms that permit the buyer to proceed with the purchase even if the appraisal is below the specified amount, typically within a specified number of days after the buyer receives the notice of appraisal value. The seller might have the opportunity to lower the price to the appraisal amount. The contingency specifies a release date, on or before which the buyer must notify the seller of any issues with the appraisal; otherwise, the contingency will be deemed satisfied, and the buyer will not be able to back out of the transaction.


72 Hour Contingency Clause: 

The 72 Hour Contingency Clause is a contingency added by sellers to provide a measure of protection against a house sale contingency. While the seller agrees to a house sale contingency, he or she can add a kick-out clause stating that the seller can continue to market the property. If another qualified buyer steps up, the seller gives the current buyer a specified amount of time (such as 72 hours) to remove the house sale contingency and keep the contract alive; otherwise, the seller can back out of the contract and sell to the new buyer.