What is a contingency clause in real estate contracts?

A contingency clause in real estate contracts is a provision that stipulates that certain conditions must be met for the contract to remain valid. This means that the fulfillment of these specified conditions is crucial for the continuation of the agreement. If these conditions are not satisfied, the parties involved may have the ability to cancel the contract without penalty.

For example, common contingencies include the buyer obtaining financing, the property passing a home inspection, or a satisfactory appraisal being conducted. This clause provides a layer of protection for buyers and sellers, ensuring that significant issues must be resolved before the transaction is finalized.

While there are aspects of contingency clauses that relate to cancellations, as mentioned in one of the other options, the primary function of a contingency clause is to establish conditions that must be satisfied. This allows for flexibility and security for both parties in the transaction.