Contingencies in real estate contracts protect the financial interests of home buyers by addressing unforeseen issues.

The National Association of REALTORS^® (NAR) Home Buyers and Sellers Generational Trends Report found that in 2024 the average residential real estate contract included two to three contingencies. A home inspection, appraisal, and financing were the most common contingencies.

“Contingencies often seem intimidating, but they provide important protection for homebuyers,” says Tom McCormick, the 2026 Chairperson for the Greater Milwaukee Association of REALTORS^® board of directors and broker/owner of EXIT Realty Horizons. “REALTORS^® help homebuyers understand and use them advantageously to protect their interests and make a competitive offer.”

How Contingencies Work

Contingencies provide the ability for home buyers to make offers conditional on certain requirements. If one or more contingencies go unmet within a stated timeframe, the buyer may withdraw from the contract without penalty, provided they act in good faith.

Working with an experienced REALTOR^® helps buyers anticipate issues, set realistic timelines, and maintain communication to keep transactions progressing.

“Contingencies can feel like the wild West,” says Mike Kollmansberger, a broker with Shorewest Realtors. “Sometimes people get cold feet when issues surface, but I like to remind buyers issues can be worked out between the parties and things usually move forward.”

Home Inspection Contingency

Contingencies play a significant role in transaction outcomes. NAR’s 2024 Profile of Home Buyers and Sellers reported that 21% of delayed closings occurred because of issues related to contingencies. Home inspections, which are included in about 75% of contracts, and appraisal contingencies, were the two main causes of delays.

“The home inspection is a big milestone in the transaction,” says Angela Walters with Walters Realty Group at EXP Realty. “It determines whether the offer to purchase moves ahead or not.”

Home inspections typically occur approximately within two weeks from the accepted offer date, but the timing can vary. However, conducting the inspection promptly allows time for the parties to review the inspection report and negotiate any repairs, price reductions, or credits given to the buyer in lieu of repairs.

The home inspection contingency describes an additional condition, such as the seller’s right to cure defects, which allows the buyer to walk away from the transaction if the seller fails to address and fix the issues within the designated timeline.

Walters notes that, in addition to the home inspection, the offer can include other contingencies outlining various tests that the buyer may request.        

• General testing – mold, asbestos
• Radon testing – commonly found in homes with finished basements where radon gas seeps through the ground
• Well water and septic system – commonly found in suburbs
• Lead paint testing

An experienced REALTOR^® plays an important role in helping buyers establish the parameters of the home inspection contingency and tests, as well as in interpreting inspection results and negotiating effectively.

Appraisal Contingency

Lenders conduct property appraisals to verify that the home’s value matches the agreed sale price.

“The appraisal contingency provides protection for the buyer by stating that the property’s value must be in line with the offer price,” says Kollmansberger. “If an appraised value comes in lower than the offer price, the contingency outlines the options for the buyer.”

Buyers typically renegotiate the purchase price, make up the difference with additional funds, or may decide to cancel the contract.

Financing Contingency

Buyers rely on the financing contingency to get approved for a mortgage loan within a set period. If a lender denies the buyer’s loan or changes terms unfavorably, the contingency gives the buyer the option to withdraw without losing their earnest money deposit.

Vague or unusually long approval periods, lack of documentation requirements, or buyers without mortgage pre-approval contribute to the chance for snags at this stage of the process. Kollmansberger recommends including the type of loan and the loan’s terms in the contingency language to minimize confusion.

Successfully Navigating Contingencies

Walters consults with buyers at the beginning of the real estate transaction to review the offer process, including the home inspection and the range of contingency terms and options.

“At the time of the offer, I have a conversation with the buyer to determine what contingencies to include,” says Walters. “Sometimes increasing the offer price and removing contingencies can help make an offer more competitive.”

When dealing with contingencies, effective communication gets the best results and keeps the process running smoothly. REALTORS^® clearly explain contingency terms, keep buyers informed at every stage, and facilitate timely resolutions to any issues that arise during the process.

The REALTOR^® Advantage

A REALTOR^® is a member of the National Association of REALTORS^®, is committed to a Code of Ethics and has the expertise to find the right home for everyone. Look for the “R” to determine if your agent is a REALTOR^®.

Locally, the Greater Milwaukee Association of REALTORS^® is a 5,500-member strong professional organization dedicated to providing information, services and products to help REALTOR^® help their clients buy and sell real estate. Visit gmar.com for more information.