What does "contingency" refer to in a real estate contract?

In real estate contracts, "contingency" refers to a specific condition that must be fulfilled for the contract to become legally binding. This means that certain events or conditions must occur before the parties are obligated to proceed with the transaction. Common examples of contingencies include home inspections, financing approvals, or the sale of a current property. If these conditions are not met, the parties may have the right to back out of the contract without penalty.

Understanding the role of contingencies is crucial in real estate transactions, as they provide a level of protection for buyers and sellers alike, ensuring that they can make decisions based on the outcome of these conditions.