Common Types of Homebuying Contingencies

Home Inspection Contingency

As the name suggests, a home inspection contingency makes a home purchase reliant on a thorough inspection. Home inspections evaluate the house’s structure, heating and cooling systems, electrical systems, plumbing, and more. They can also distinguish between less expensive and more expensive repairs based on their dollar amount or percentage of the sale price.

If there are issues found during the inspection, this contingency can allow you to:

• Negotiate with the seller to fix the problem or reduce the selling price. 
• Withdraw your offer if major issues are found. 
• Accept the property as-is and address the issues yourself.

For example, if the inspection finds an old and unreliable water heater, you can ask the seller to replace it before the sale closes or accept the home as-is and assume responsibility for the replacement after you move in. If there’s extensive termite damage and problems with the foundation, this contingency might allow you to withdraw your purchase offer.

Title Contingency

Title contingencies are there to help protect you if any problems are found during the property title search. Issues like liens, unpaid taxes, and ownership disputes can prevent a smooth transfer of ownership, so this contingency ensures you won’t inherit legal problems tied to the property.

A title company will complete a thorough search of the home’s history and identify any potential concerns. If issues are found, the title contingency can allow you to get out of the contract or request resolution before moving forward with the sale.

Homeowners Insurance Contingency

A homeowners insurance contingency lets you back out of a home sale if you can’t secure affordable homeowners insurance to protect your new home. This can be especially important for homes in areas affected by wildfires or flood zones, or areas prone to high insurance costs.

Before you close, if you discover you can’t find available coverage that’s reasonably priced, you can walk away from the deal without losing your earnest money.

Benefits and Risks of Homebuying Contingencies

There are pros and cons to including contingencies in your offer to buy a home. They can protect you from financial risks and the costs of expensive repairs, but they can also make your offer less attractive to sellers.

Some benefits for buyers include:

• Less risk: Contingencies can help you avoid buying a home with too much potential for risk. You can back out of a purchase without penalty if significant issues arise.
• Ability to negotiate: You can request repairs, a lower purchase price, or other seller concessions if issues with the property are discovered.
• More time to decide: You’ll have more time to breathe while you secure financing and ensure the home meets your standards.

Risks to consider include:

• Less attractive offer: Sellers may prefer offers with fewer contingencies, particularly if the housing market is competitive. This is because the potential buyer can back out of the sale for reasons often beyond the seller's control.
• Longer sale process: Because contingencies add extra steps to the homebuying process, they can prolong the amount of time it takes to get you to closing.
• The deal potentially falling through: If conditions aren’t met, the transaction could be terminated, and you’d have to start over.

Think about what makes sense for you and consult a real estate professional to help you decide.

Contingencies for Homebuying FAQs

Here are answers to some questions you may have about contingencies when buying a home.

Is a Home Contingency Clause the Same as a Contingent Listing?

No. Contingency clauses, which are part of an offer you make on a home, specify requirements that must be met for the transaction to proceed. A contingent listing refers to a specific way a property can be listed after an offer has been accepted, but the sale isn’t finalized.

Can You Still Buy a House if It Says Contingent?

A home listed as “contingent” means the seller has accepted an offer, but some conditions need to be met to complete the sale. You can still make an offer on a contingent home since the existing offer could fall through if the buyer can’t secure mortgage financing or if inspection problems arise.

Is It Better to Be Contingent or Pending?

For homebuyers, a “contingent” listing might be better than a “pending” listing, because contingent means there’s still a chance to get the home if conditions aren’t met. Pending indicates the process is further along and that the sale is more likely to go through. On the other hand, sellers may view "pending" as better because their home is closer to being sold.

Final Thoughts on Homebuying Contingencies

Homebuying contingencies can help you make more confident decisions during the homebuying process and protect you from unexpected costs or other unpleasant surprises.

Whether you’re ready to buy a home with or without contingencies, Freedom Mortgage can help you find the right loan for your needs. Get started today on the path to owning your dream home.