Contingencies are the conditions built into your offer that let you back out or renegotiate under specific circumstances. Understanding how they work, and how they end, matters more than most buyers realize going in.
What Does Contingent Offer Mean?
A contingent offer is an accepted offer that still has conditions attached before the sale is final, most commonly an inspection contingency, an appraisal contingency, and a loan contingency. As long as these contingencies are still active, you generally have the right to renegotiate or cancel the contract if something doesn’t check out, without automatically losing your earnest money deposit. Once you remove a contingency, that protection goes away for that specific item.
The Appraisal Contingency, Explained
The appraisal contingency protects you if the lender’s appraiser values the home for less than your agreed purchase price. Since lenders won’t loan more than a property appraises for, a low appraisal creates a real gap that has to be resolved somehow before you can close on the original terms. Without this contingency in place, you’d be on the hook to cover that gap yourself or lose your deposit.
What to Do When an Appraisal Comes in Low
First, don’t panic. This is more common than people expect and there are several standard paths forward. You can ask the seller to lower the price to match the appraisal, you can cover the gap yourself with additional cash, you can split the difference through negotiation, or in some cases your agent can challenge the appraisal with additional comparable sales data if there’s a real basis to think it was inaccurate. Which option makes sense depends on how much you want the property and how much room you have financially.
Contingency Removal Deadlines in California
Standard California purchase contracts set specific deadlines for removing each contingency, commonly around 17 days for inspection and loan contingencies unless the contract states otherwise. Once that deadline passes without written notice from you, contingencies are often treated as removed by default under the contract language, so pay close attention to these dates. Your agent should be tracking them closely and keeping you ahead of each one.
Earnest Money Deposit, Explained
Your earnest money deposit is a good-faith payment, usually a percentage of the purchase price, that gets held in escrow to show you’re serious about the purchase. It’s applied toward your down payment and closing costs at closing, it isn’t an extra cost on top of what you’re already paying.
How Earnest Money Works If the Deal Falls Through
What happens to your deposit if the deal doesn’t close depends on why it fell through and which contingencies were still active. If you cancel within an active contingency period for a legitimate reason covered by that contingency, such as a failed inspection or appraisal issue, you’re typically entitled to your deposit back. If you cancel after removing contingencies, or for a reason not covered by an active contingency, the seller may have a claim to keep some or all of the deposit. This is exactly why contingency deadlines matter so much, and why you shouldn’t remove a contingency until you’re genuinely comfortable moving forward.
If you’re evaluating an offer and want a clear read on the contingencies involved, get in touch.