What is a contingency in a real estate contract?

A contingency in a real estate contract serves as a specific condition or requirement that must be fulfilled in order for the contract to be considered binding. This means that the agreement is dependent upon certain events taking place, such as a satisfactory home inspection, the buyer securing financing, or the property appraising at a certain value. If these conditions are not met, the buyer or seller may have the right to terminate the agreement without facing penalties. Contingencies are crucial because they protect both parties involved in the transaction, ensuring that the contract only progresses when specific, pre-defined criteria are satisfied. This legal mechanism provides a form of assurance and can help avoid potential disputes later in the transaction process.