Which real estate contingencies should you include in your offer?

For a majority of Canadians, buying a home will be the biggest purchase they ever make. And unlike many purchases you make, there is no 30-day return policy or buyer satisfaction guarantee.  

The good news is you can take certain precautions to avoid a home buying disaster by adding real estate contingencies into your contract.  

Many real estate contracts include contingencies, which are clauses that allow buyers or sellers to back out of the deal if certain conditions are not met.  

What are real estate contingencies? 

When you’re ready to buy a house, you will have to sign a contract for the sale. Real estate contingencies are clauses in a home purchase contract that may contain one or more conditions that must be met for the sale to be finalized successfully.  

They protect buyers by allowing them to back out of the deal without being penalized if the conditions of the contract are not met.  

Contingencies are common, and generally don’t lead to deals falling through – however, in rare cases, if a seller denies a contract that includes an inspection contingency, it may signal that they’re hiding underlying structural issues with the home that the buyers might be glad to have dodged.  

Often the decision to include or waive certain contingencies depends on the market. In a buyer’s market, the buyer has a bit more leverage, so they can add these protective contingencies  and aren’t likely to result in a bid being refused during a bidding war.  

In a seller’s market, however, the opposite is true. With high demand and limited inventory, sellers often receive multiple competitive offers. In this instance, having contingencies in your offer to buy can make it less attractive compared to other bids that don't have contingencies.  

Related: Six common mistakes first-time homebuyers make 

Common real estate contingencies  

Here’s a list of the most common real estate contingencies that you may want to use in your contract when buying a home in Canada. 

Inspection contingency 

Many buyers like to get a home inspection for a prospective property before they buy it. A home inspection contingency allows the buyer to have the house professionally inspected within a specified timeframe. If, during the inspection, it becomes clear that the house has any major defects, the buyer can request repairs, renegotiate the price or cancel the contract.  

In a sellers’ market, it can be tempting for a buyer not to include an inspection contingency to make their bid more competitive. However, waiving the inspection is risky, because upon completing the sale and moving in, you could discover severe issues with the home like major electrical problems or foundation issues that could cost you thousands of dollars to repair.  

Mortgage contingency 

A mortgage or financing contingency is when the buyer makes the sale of the house dependent on successfully securing a mortgage. If the buyer is unable to get a mortgage, this contingency allows them to pull out of the sale.  

Without this contingency in the contract, a buyer who can’t get a mortgage could lose their deposit and face legal action from the seller. 

Appraisal contingency 

With an appraisal contingency, a third-party appraiser can determine whether the home is worth the sale price. If the appraisal is significantly lower than the sell price, the buyer can renegotiate or cancel the contract. 

By not using an appraisal contingency, the buyer could end up paying much more for a property than it is actually worth. 

Home sale contingency 

A home sale contingency makes the enforcement of the contract dependent on the buyer selling their current home within a set time period. If the buyer is unable to sell their property, they can cancel the contract. 

In a competitive market, a seller is unlikely to accept an offer with this contingency as it makes the sale of their home too uncertain. However, if the buyer does not include this caveat in their contract, they risk being unable to buy the new home if their current one doesn't sell. 

Title contingency 

A title contingency allows the buyer to review the property title for any issues like liens or ownership disputes. If there are any serious problems with the property’s title, the buyer can cancel the sale.  

If you don’t include a title contingency, you could end up buying a home that has significant liens or may not even legitimately belong to the seller. 

Deciding Which Contingencies to Include or Waive 

When it comes to deciding which contingencies to include or waive, it’s vital to work with a real estate agent you can trust. They can provide you with informed advice based on your unique situation and market conditions as to whether you should include contingencies in your offer.  

You should also make sure you’re pre-approved for a mortgage so you know how much you can afford to offer on a house. It also ensures you don’t risk making an offer and then having your financing fall through. 

Read next: The newcomer's guide to home ownership