Explore the pros and cons of including contingencies in a purchase offer.

When buying a home, a dose of caution can help protect your hard-earned dollars.

One of the most common ways buyers can financially protect themselves is by including one or more contingencies that provide a way out of the deal in certain situations. Here’s a quick overview of what contingencies are and the pros and cons of using them.  

What is a contingent offer?

A purchase offer written with contingencies means a buyer will only follow through with the purchase if one or more specific conditions are met.

Typical contingencies could include:

• Sale of the buyer’s home within a certain period
• A satisfactory home inspection report
• The ability of the buyer to obtain a mortgage
• The title to the home is clean and free from claims or other issues

A buyer may include one or more contingencies—or none at all.

While the contingencies are worked through, a seller may accept back-up offers from other buyers in case the contingencies aren’t met. However, a home listed as “under contract” could be passed over by many buyers who don’t want to waste time on a home they may not be able to buy.

Pros of a home offer with contingencies

Buyers use contingencies to lower their risk because they allow the buyer to back out of deal if certain conditions aren’t met—and keep their earnest money.

For sellers of homes that have been on the market for a long time, accepting a contract with contingencies may be the path to completing a sale.

Cons of including contingencies in a purchase offer

While contingencies offer homebuyers several advantages, it’s important to note that there are drawbacks to making a home offer with one or more contingencies. In a seller’s market where buyers are competing for homes, a deal with contingencies is less attractive than a deal without them. Additionally, if the contingencies aren’t met and the buyer walks away from the sale, the seller inevitably has to invest more time in to finding a new buyer.

Unmet contingencies don’t mean a deal is dead

Some home deals still go through even though all the contingencies aren’t met if the buyer and seller are willing to negotiate. For example, an inspection might show that electrical upgrades are needed. Instead of nixing the deal because as the result of unsatisfactory home inspection results, the buyer could ask the seller to accept a lower price to cover the cost of the upgrade. The seller might agree to a lower sales price, offer to make the upgrade or even make a counteroffer. In many cases, the deal can still move forward.

Eliminate one contingency by getting pre-approved

You can avoid contingencies for financing by getting pre-approved for a Consumers home mortgage before you make a purchase offer. Also, home purchase offers that include a letter of pre-approval are more attractive to sellers than those without.

Consumers helps thousands of members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800.991.2221.

*All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.