There is a word sitting in almost every house contract in California that decides more closings than the price does, and it is the one word I had to look up the first time I read a purchase agreement. A contingency is a condition. Thanks, dictionary. It helped not at all.
Let us talk about what a contingency actually is, what each of the common ones does, and what really changes when an offer shows up with none of them. This is the piece of paperwork worth ten minutes.
A CONTINGENCY IS AN EXIT DOOR, AND THE DEPOSIT IS THE HINGE
Strip the language down and a contingency is a named exit door written into the agreement. It carries a deadline, and it is where a buyer can decide this house is not the one, step out of the contract, and generally get their deposit back. The deposit is the hinge on that door, which is why it comes up whenever somebody asks how serious a buyer really is.
An offer with no contingencies has the doors closed. A buyer saying they will close at this price, whatever turns up in between.
THE FOUR EXIT DOORS THAT SHOW UP MOST OFTEN
Almost every offer I see carries at least one of these. None of them is a sign of a flaky buyer, and none is a trick.
- The inspection contingency. The buyer gets a window to look closely, bring in whoever they want, and decide whether the house is what they thought it was.
- The appraisal contingency. If an appraiser values the house below the agreed price, this is the door to reopen the number or leave.
- The loan contingency. The buyer has not yet promised the mortgage will come through, so if the lender says no, they can step out.
- The sale of the buyer’s own house, for a buyer who needs their current place to sell first. This is the door that says so out loud.
WHY THE DOORS EXIST IN THE FIRST PLACE
A buyer is being asked to commit real money to a house they have not fully examined, on a loan that is not final, and sometimes while their own house is still for sale. Contingencies are the protection built for that position, and they are boring because they work.
Most sales close with several still in place, and the great majority of buyers use them to get information rather than to get out. A contingency is usually a question, not an escape.
WHAT AN OFFER WITHOUT CONTINGENCIES ACTUALLY CHANGES
It removes the doors. That is the whole of it, and it is worth being exact about what it does not do.
- It does not mean the buyer is paying cash. A loan can still be funding the deal in the background.
- It does not mean nobody looks at the house. Every buyer eventually wants to see what they are buying, prompt or not.
- It does not mean the title work stops, because that runs no matter how a sale is structured.
What it does mean is that the number on the page stops moving. And closing the doors does not close the risk: a promise to close is still made by a person, and plans and timing change between a signature and a closing table.
THE PART SELLERS GET TOLD WRONG ABOUT ALL OF THIS
Two pieces of advice get handed to sellers constantly, and they point in opposite directions. Take the highest offer. Take the offer with no contingencies. A high offer with a full set of contingencies is a ceiling rather than a promise: the buyer holds their doors open, so if the inspection finds something expensive, the conversation comes back to you.
An offer without contingencies is usually the smaller number, and what that difference buys is a number that stays where it is. Neither is automatically better, and anybody who tells you otherwise is selling something.
Which one suits you depends on things nobody outside your house can see: how much you care about closing on a particular date, how likely the house is to survive a close look, and how many offers you are holding. On the direct sale side you will usually be offered less than a strong listing would bring, and in exchange you are not spending months holding the house open and hoping a loan comes through. That is a trade rather than a win.
THE PICTURE I KEEP REACHING FOR, AND WHERE IT BREAKS
Here is the comparison I keep coming back to. Booking a flight gives you two versions of the same seat: a refundable fare that costs more and lets you change your mind, and a cheaper one that commits you. A contingency is the refundable fare.
The picture holds for about four seconds. On an airline, the gap between those two fares is a published number, the same for every traveler in that seat, printed on a screen before anybody pays. There is no equivalent figure for keeping your exits open on a house. What a buyer pays for the freedom to walk depends on the house, on their own cash and loan, and on how many other offers are on the table.
And when a traveler cancels a seat, it goes back to a queue of people standing at the gate. When a buyer walks, the seller is standing in a quiet kitchen with a sale that starts over.
WHAT IS WORTH ASKING BEFORE YOU SAY YES TO ANYTHING
None of this is legal advice, and none of it describes your contract, which is the only one that counts. It is a plain explanation of how the paperwork is shaped. Before you sign, ask somebody who is not trying to buy your house.
Questions I would want answered in writing:
- Which contingencies are actually in this offer, and what deadline hangs off each one?
- How much of the buyer’s money is cash, and how much is a loan that still has to be approved?
- What happens to the deposit if one of these doors gets used?
- If the inspection contingency is gone, has this buyer been inside the house?
- Can the doors be narrowed rather than removed, with tighter windows, if that is the real worry?
If you want the sequence end to end, the whole process is laid out here.
None of this is complicated once the vocabulary stops being a wall. A contingency is a condition, a condition is a door, and a door is a decision about how much certainty you want to buy and what you are willing to give up for it. Anyway, thanks for being here.
Question for you: if you have sold a house before, did anybody explain what the contingencies in your contract actually did before you signed it? I would like to know how often that happens.
