What does a contingency clause in a real estate contract do?

A contingency clause in a real estate contract establishes specific conditions that must be met for the contract to remain valid. This means that the agreement is dependent on certain events occurring, which protects both the buyer and the seller. For instance, common contingencies may include a buyer securing financing, satisfactory home inspections, or the sale of the buyer's existing home. If these conditions are not met within a specified timeframe, the buyer typically has the right to back out of the contract without penalty. This conditional structure allows both parties to ensure that critical elements of the transaction are addressed before finalizing the sale, thereby providing a safeguard against unforeseen circumstances affecting the deal.