Definition
A contingency is a specific condition written into a purchase contract that must be satisfied, or the buyer has the legal right to cancel and get their earnest money deposit back. The most common types include financing, appraisal, inspection and sale-of-current-home contingencies. Each one functions as a legal exit ramp for the buyer, which is exactly why offers loaded with multiple contingencies carry more risk for a seller than a clean, simple offer. Understanding which contingencies apply to an offer you're considering helps you gauge how likely that sale is to actually reach closing. A financing contingency, for example, depends entirely on a lender's underwriting decision, something completely outside your control as the seller. Fewer contingencies generally mean a more predictable path from signed contract to closing day.
Example
Bethany accepted a $240,000 offer on her house in Richmond that included a home-sale contingency, meaning the buyer could only close once they sold their own condo. She agreed to it because the buyer seemed motivated and the price was strong, but she kept showing her house to backup buyers just in case. Five weeks into the contract, the buyer's condo deal collapsed when their own buyer's financing fell through. Bethany's agent called with the news on a Friday afternoon, and she remembers feeling like she was starting completely over. Because the contingency was still active, the buyer canceled and got their earnest money back, and Bethany's house went back on the market having lost more than a month of prime selling time.