When purchasing residential real estate, there is typically a time period between the date when you sign the purchase contract and the date when you sign closing paperwork. Signing a purchasing contract means you agree to buy the home if all requirements in that contract are met. It's common to place contingencies in that contract to protect you from buying a home that is in poor condition or otherwise doesn't meet your needs.
One of the most common contingencies is that the buyer will get a home inspection and be satisfied with the outcome of that inspection. Major issues with the home usually make it possible for the buyer to back out of the contract or renegotiate with the seller. For example, someone might renegotiate with a seller if an inspection showed that the heating and cooling unit was insufficient in a home. The new contract might require that the seller make repairs or replace equipment before the closing or that the seller reduce the sale price so the buyer can cover those expenses.
Contingencies also work for the seller. The seller will likely require that the buyer have a proper, insured home loan before closing. Less commonly, the seller might place a contingency in the contract that the seller won't finalize until the seller has purchased his or her own new home.
Both parties have to agree to all contingencies in a contract, which means that a buyer can't be taken advantage of through contingencies as long as he or she understands everything in the contract. Working with an experienced professional helps you understand your real estate contracts to avoid putting yourself in a poor situation.
Source: FindLaw, "Contingencies to Consider Before You Buy," accessed Jan. 20, 2016