What Is a Contingency?
In real estate, signing a purchase agreement does not guarantee the sale will close. Most Florida residential and commercial contracts are riddled with contingencies.
A contingency is essentially a legal "escape hatch" based on a condition precedent. It outlines a specific event that must happen within a strict timeframe. If the event does not happen, the protected party can legally cancel the contract and retrieve their earnest money deposit. If the event does happen, the contingency is "satisfied" or "removed," and the contract moves forward to closing.
Common Real Estate Contingencies
- Financing Contingency — The buyer has (typically) 30 days to secure a formal mortgage commitment. If the bank denies the loan, the buyer can cancel the contract.
- Appraisal Contingency — The bank's formal appraisal must match or exceed the purchase price. If the home appraises for less, the buyer can cancel or force the seller to renegotiate the price.
- Inspection Contingency — The buyer has a "due diligence period" (often 10-15 days) to conduct structural, pest, and roof inspections. In an As-Is Contract, the buyer can cancel for almost any reason during this period if they do not like the inspection results.
- Sale of Prior Home Contingency — The buyer's obligation to buy the new house is entirely dependent on them successfully selling their current house first. Sellers often dislike this contingency because it creates a domino effect of risk.
Strict Deadlines and Waivers
Contingencies are strictly governed by deadlines. If a buyer's financing contingency expires on Friday at 5:00 PM, and they fail to notify the seller that their loan was denied until Monday morning, the contingency has expired. The buyer is now legally locked into the contract; if they cannot pay, they are in breach of contract and will lose their earnest money deposit.
Related Terms
- Condition Precedent — The broader legal term for a contingency
- As-Is Contract — A contract featuring a highly flexible inspection contingency
- Earnest Money — The funds protected by contingencies
Barnes Walker Real Estate Contracts
Barnes Walker's attorneys assist buyers and sellers in drafting, enforcing, and safely waiving complex contract contingencies, ensuring our clients never accidentally forfeit their escrow deposits due to missed statutory deadlines. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC