All About Contingencies: What They Are, How They Work, and When to Use Them

Contingencies are among the most important — and most misunderstood — elements of a California real estate purchase agreement. They protect buyers from being locked into a purchase if certain conditions aren't met, and they give sellers insight into the strength and certainty of an offer. Understanding exactly how they work puts both buyers and sellers in a much stronger position.

What Is a Contingency?

A contingency is a condition written into a purchase contract that must be satisfied — or waived — for the sale to proceed. If a contingency is not satisfied and the buyer has not yet removed it, the buyer can cancel the contract and recover their earnest money deposit. Once a contingency is removed, the buyer's deposit is generally at risk if they cancel for that reason.

Think of contingencies as off-ramps: they exist to protect the buyer, and they have deadlines. Missing those deadlines has real consequences.

The Three Main Contingencies in California

1. Inspection Contingency

The inspection contingency gives the buyer a set period — typically 10–17 days in California — to conduct a home inspection and review the findings. During this window, if the buyer is dissatisfied with the condition of the property for any reason, they can cancel the contract and receive their deposit back.

After the inspection period, buyers typically either remove the contingency (accepting the property in its current condition), request repairs or credits, or cancel. The inspection contingency is the broadest protection buyers have — "dissatisfied with the property" can mean almost anything during this window.

2. Appraisal Contingency

The appraisal contingency protects buyers when financing: if the property appraises below the purchase price, the buyer can cancel and recover their deposit rather than being forced to make up the difference out of pocket. This contingency is tied to the lender's appraisal, which typically occurs during the first few weeks of escrow.

Cash buyers do not have a loan-required appraisal, but can still include an appraisal contingency if they choose to. In competitive offers, buyers sometimes include an appraisal gap guarantee — a commitment to cover a set amount of any shortfall — to strengthen their offer without fully waiving this protection.

3. Loan Contingency

The loan contingency protects buyers if they are unable to secure financing on the terms described in the purchase agreement. Even with a pre-approval, loan issues can arise during escrow — a change in employment, a rate lock expiration, or a property that doesn't meet lender guidelines. The loan contingency gives buyers a safe exit if financing falls through.

In California, the loan contingency typically lasts longer than the inspection contingency — often 21 days — and is the last of the main contingencies to be removed.

Active vs. Passive Contingency Removal

California's standard purchase agreement (the CAR RPA) defaults to passive contingency removal: once the contingency deadline passes, the seller can issue a Notice to Perform, and if the buyer doesn't respond within two business days, the contingency is considered removed. This is a common source of confusion — many buyers don't realize their contingency can expire without them actively removing it.

Some contracts use active removal, where the buyer must sign and deliver a contingency removal form for the contingency to actually be removed. Your agent will make sure you understand which applies to your contract.

What Happens When You Remove Contingencies

Once contingencies are removed, the buyer's earnest money deposit becomes non-refundable for those specific reasons. If the buyer cancels after removing all contingencies without a contractual basis, they risk losing their deposit — which in Los Angeles can be tens of thousands of dollars.

This is why the decision to remove contingencies should be made carefully and with full information — not simply to meet a deadline or please a seller.

Contingencies in Competitive Markets: When Buyers Waive Them

In highly competitive offer situations, buyers sometimes waive one or more contingencies to make their offer more attractive. This is a legitimate strategy — but one with real risk. Waiving the inspection contingency means you're accepting the property regardless of what an inspector finds. Waiving the appraisal contingency means you'll cover any gap between the appraised value and purchase price out of your own funds.

If you're considering waiving contingencies to win a property, read our guide on writing offers that get accepted for a full picture of how to weigh the tradeoffs.

The Seller's Perspective

Sellers evaluating multiple offers pay close attention to contingencies. An offer with fewer or shorter contingencies signals a more committed, lower-risk buyer. An offer with extended contingency periods or unusual conditions may lead sellers to prefer a slightly lower offer with cleaner terms.

When you're under contract as a seller, you remain somewhat exposed until contingencies are removed — the property is effectively off the market, but the buyer can still cancel. Understanding your buyer's contingency timeline is an important part of managing the escrow process.

Other Contingencies You May Encounter

Beyond the big three, California purchase agreements sometimes include:

• Sale of buyer's property contingency: The buyer's purchase is contingent on selling their current home. Sellers typically try to limit the duration of this contingency or negotiate a kick-out clause.
• HOA document review contingency: For condos and planned developments, buyers have a right to review HOA documents — financials, CC&Rs, meeting minutes — and cancel if they're unsatisfied.
• Septic and well contingency: For properties with private systems, buyers may include the right to inspect and test these systems.