A contingency is a clause in a purchase agreement that makes the contract dependent on a specific condition being satisfied. If the condition is not met, the party protected by the contingency can cancel the deal, usually without penalty and often with their earnest money returned.
Common contingencies include a home inspection contingency, a financing or loan contingency, an appraisal contingency, and a sale-of-current-home contingency. Each gives the buyer a defined window to complete a task, such as securing a mortgage or inspecting the property, and an exit if things go wrong.
Contingencies protect buyers but can make an offer less appealing to sellers, especially in competitive markets. Some buyers waive certain contingencies to strengthen their bid, which increases their risk.