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

In a real estate transaction, a contingency is understood as a provision in a contract that stipulates certain conditions must be satisfied for the agreement to become binding. This means that the contract contains specific requirements that, if not met, can allow one or both parties to withdraw from the agreement without penalty. For instance, common contingencies may include the buyer obtaining financing, the results of a home inspection, or the sale of the buyer’s current home. The presence of contingencies provides protection and clarity to both the buyer and the seller, ensuring that certain prerequisites are fulfilled before the transaction proceeds. This element is crucial in real estate as it helps to manage risks and expectations associated with the sale.