The three essential contingencies every buyer should include are: an inspection contingency (lets you terminate based on property condition), a financing contingency (protects you if your loan falls through), and an appraisal contingency (lets you renegotiate or walk if the home appraises low).
Optional contingencies include a home sale contingency (if you need to sell your current home first) and HOA document review. These contingencies are your safety net -- never waive them without understanding the risk.
Inspection Contingency -- The Most Important One
The inspection contingency gives you 7 to 10 days to complete a home inspection and negotiate repairs with the seller. If the inspection reveals major issues (foundation problems, roof damage, electrical hazards, plumbing failures), you have the right to terminate the contract and get your earnest money back.
Without this contingency, you buy the home as-is regardless of what the inspection finds. That means if the HVAC is dead, the foundation is cracked, or the roof leaks, those become your problems the day you close. Never waive an inspection contingency without a very clear understanding of the condition of the property -- and even then, the risk is significant.
Financing Contingency -- Protects Against Loan Denial
The financing contingency says your offer is contingent on securing a mortgage. If your lender denies your loan application through no fault of your own -- perhaps your property doesn't meet the lender's requirements, or an income document can't be verified -- you can terminate the contract and get your earnest money back.
This contingency is standard in virtually all financed transactions. Without it, if your loan falls through for any reason, you could lose your earnest money deposit. In Texas, the standard TREC contract includes a financing contingency by default. The key is understanding the timeline: you typically have a set number of days to secure your loan commitment.
Appraisal Contingency -- Protects Against Overpayment
The appraisal contingency protects you if the home appraises for less than your purchase price. The appraisal is an independent valuation ordered by your lender to confirm the property is worth what you agreed to pay. If it comes in low, you can renegotiate the price with the seller, pay the difference out of pocket, or terminate the contract and get your earnest money back.
Without this contingency, you are on the hook for the full purchase price regardless of what the home actually appraises for. If the home appraises for $280,000 and you offered $300,000, you would need to cover the $20,000 gap in cash or renegotiate from a much weaker position.
Home Sale Contingency -- Risky in Competitive Markets
A home sale contingency protects you if you need to sell your current home before you can close on the new one. It lets you back out of the purchase if your current home doesn't sell within a specified timeframe. This sounds great in theory, but it comes with a significant downside.
This contingency makes your offer significantly less competitive. Sellers see it as uncertainty -- they don't want to wait on your home to sell while they miss other opportunities. In hot markets, many sellers reject offers with a home sale contingency outright. If you think you might need one, talk to your agent and lender about bridge financing or other alternatives that can make your offer stronger.
HOA Document Review
If the property belongs to a homeowners association (HOA), you should have the right to review the governing documents -- CC&Rs (Covenants, Conditions & Restrictions), financial statements, meeting minutes, and any special assessments. This contingency gives you time to read through these documents and make sure the HOA is well managed and the rules work for you.
What happens if you don't like what you see? If the HOA has a special assessment looming, strict rental restrictions, or a history of aggressive fines, you can terminate during the review period. This is not always a separate line item in every contract, but it is a protection you should ask for when buying in an HOA community.
What Happens If You Waive Contingencies
Waiving contingencies makes your offer more competitive, but it exposes you to significant financial risk. Here is exactly what each waiver means:
- Waive inspection: You buy the home with whatever problems exist, hidden or not. Foundation cracks, mold, faulty wiring -- all yours after closing.
- Waive appraisal: You must cover any gap between the appraised value and the purchase price in cash. If the home appraises $20,000 less, you bring $20,000 more to closing.
- Waive financing: If your loan is denied for any reason, you lose your earnest money. There is no safety net.
There are situations where limited waivers make sense -- for example, waiving only the appraisal contingency on a new construction home you know is priced at market value. But full waivers should only happen with complete understanding of the consequences. Your agent's job is to help you weigh the risks.