What does "contingency" mean in a real estate contract?

In a real estate contract, "contingency" refers to a condition or provision included in the agreement that must be satisfied for the contract to remain valid. This means that certain events or actions must occur before the contract can move forward to completion. For example, a common contingency is the buyer obtaining financing or the property passing an inspection. If these conditions are not met, the buyer may have the right to terminate the contract without penalty.

This concept is essential in real estate transactions because it helps protect both buyers and sellers by allowing them to back out of the deal under specific circumstances, thus ensuring that all necessary conditions for a successful transaction are addressed. Each contingency outlined in the contract plays a crucial role in defining whether or not the sale can proceed, ensuring that both parties are clear about the necessary steps to be taken.