What does "contingency" mean in a real estate contract?

In a real estate contract, a "contingency" refers to a condition that must be satisfied for the agreement to become legally binding. This means that certain specified events or terms must occur before the obligation to purchase or sell the property is activated. Common contingencies may include the buyer obtaining financing, a satisfactory home inspection, or the sale of the buyer's current home. If the contingency is not met, the parties may be able to back out of the contract without penalty, thus affecting the enforceability of the agreement based on the occurrence of these conditions.

Understanding the role of contingencies is crucial for buyers and sellers as it provides protections and outlines the terms under which the deal can proceed or must be renegotiated or terminated.