Mia Lennon
Phone
(406) 641-0051
Email
[email protected]
By Mia Lennon
One of the most important things I do for my clients is make sure they understand what they are agreeing to before they sign a purchase contract. Contingencies are central to that conversation. They determine what protections a buyer has, what obligations a seller carries, and what happens if something goes sideways between offer acceptance and closing. In Big Sky, where many buyers are purchasing second homes or luxury mountain properties from out of state, getting these details right matters more than people expect.
Key Takeaways
- Contingencies are contract conditions that must be met for a sale to close — if they are not met, the buyer can typically exit without losing their earnest money
- The four most common types are inspection, financing, appraisal, and home sale contingencies
- Each contingency has a defined timeframe — missing a deadline can put earnest money at risk
- In competitive markets, buyers sometimes waive contingencies to strengthen their offer, which increases risk
What a Contingency Is — and Why It Matters
A contingency is a clause in a real estate purchase contract that makes the sale conditional on a specific event or outcome. If the condition is not satisfied within the agreed timeframe, the buyer has the right to cancel the contract and, in most cases, receive their earnest money deposit back.
Contingencies protect buyers from being locked into a purchase where something material has gone wrong — a structural problem discovered during inspection, a loan that falls through, or an appraisal that comes in well below the agreed price. For sellers, contingencies define the timeline and framework for the deal, so both parties know exactly what needs to happen and by when.
Every contingency has two key components: the condition itself and the deadline for meeting it. When the deadline passes without resolution, the buyer typically must either formally remove the contingency in writing and proceed, or exercise the right to cancel.
The Four Most Common Contingencies
Inspection contingency
The inspection contingency gives the buyer a defined window — typically seven to ten days — to hire a licensed inspector and review the condition of the property. In Big Sky, this is especially important. Mountain properties can carry specific structural considerations: roof snow loads, foundation performance in freeze-thaw cycles, older mechanical systems, and wildfire mitigation standards all warrant careful review.
After the inspection, the buyer can accept the property as-is, request repairs or credits from the seller, or cancel the contract if the findings are unacceptable. According to NAR data, approximately 75% of buyers include an inspection contingency in their contract. In a second-home or investment market like Big Sky, skipping the inspection to strengthen an offer is a risk that requires serious financial preparation.
Financing contingency
The financing contingency protects a buyer whose purchase depends on securing a mortgage. It gives the buyer a specified period — commonly 21 to 30 days — to obtain a loan approval under agreed-upon terms. If the buyer cannot secure financing within that window, they can exit the contract without penalty.
Pre-approval before making an offer is standard practice, but pre-approval is not the same as final loan commitment. The full underwriting process can surface income documentation issues, appraisal complications, or changes in the buyer's financial profile that affect approval. The financing contingency is what protects buyers during that gap.
Appraisal contingency
When a buyer is financing their purchase, the lender orders an independent appraisal to confirm that the property's value supports the loan amount. The appraisal contingency protects the buyer if that appraised value comes in below the purchase price.
In that scenario, the lender will only finance up to the appraised value. The buyer must then either make up the difference in cash, renegotiate the price with the seller, or exit under the appraisal contingency. In 2024, roughly 8% of appraisals came in below the sales price. Buyers who waive the appraisal contingency need to be prepared to cover any gap out of pocket — a significant consideration at Big Sky price points.
Home sale contingency
A home sale contingency allows a buyer to make their purchase conditional on the successful sale of their current home within a specified period. Sellers typically accept this contingency less readily than others because it introduces uncertainty and timeline risk. When a seller does accept it, they may include a kick-out clause, which allows them to continue showing the home and gives the original buyer a defined window to remove the home sale contingency if another offer comes in.
Contingency Timelines and Deadlines
Each contingency operates on its own clock. Inspection periods are typically the shortest. Financing and appraisal contingencies often overlap, since the lender orders the appraisal as part of the loan process, with combined windows of 21 to 30 days common.
What happens when deadlines pass
- If a buyer misses a contingency deadline without formally removing or addressing it, their earnest money may be at risk
- Sellers can push for shorter contingency windows in competitive situations — buyers should be realistic about how quickly each step can actually be completed
- Extensions are possible but require mutual written agreement between the parties
- Once a contingency is removed — voluntarily or by deadline — the buyer generally cannot cancel without risking their deposit
In Big Sky, where many buyers are coordinating inspectors, appraisers, and lenders across time zones, building in realistic contingency periods from the start prevents rushed decisions during a significant purchase.
When Buyers Consider Waiving Contingencies
In competitive markets, some buyers waive one or more contingencies to make their offer more attractive to the seller. This is a legitimate strategy but carries real financial and legal risk.
What waiving contingencies means in practice
- Waiving the inspection contingency means accepting the property in whatever condition the inspection would have revealed — any problems discovered after closing become the buyer's responsibility entirely
- Waiving the appraisal contingency means the buyer commits to covering any gap between the appraised value and the purchase price in cash, regardless of the amount
- Waiving the financing contingency can put earnest money at risk if the loan falls through for any reason
Buyers considering waiving contingencies should work closely with their agent and, where appropriate, legal counsel to fully understand the exposure involved before making that decision.
FAQs
Can a seller back out if a contingency is not met?
In most cases, the right to cancel when a contingency is not met belongs to the buyer, not the seller. However, depending on the contract language, certain situations — such as a buyer repeatedly missing deadlines — may give the seller grounds to act. The specific terms depend on how the purchase agreement is written, which is why careful contract review matters.
What happens to earnest money if a contingency is not met?
When a buyer cancels within an active contingency period and follows the proper notification process, the earnest money is generally returned in full. If a buyer attempts to cancel after a contingency deadline has passed or outside the scope of the contingency, the earnest money may be forfeited to the seller. The exact rules depend on the contract and applicable state law.
Are contingencies negotiable?
Yes. Both the inclusion of a contingency and its specific terms — including the timeframe and conditions for removal — are negotiable between the parties. Your agent plays a key role in structuring contingencies in a way that protects your interests while keeping the offer competitive.
Buy or Sell in Big Sky With Clarity and Confidence
Understanding contingencies before you make or accept an offer is one of the clearest ways to protect yourself in a real estate transaction. As a full-time Big Sky broker, I walk every client through what each clause means for their specific situation — whether they are buying a ski-in/ski-out condo in Moonlight Basin, a home in Meadow Village, or land in Spanish Peaks.
Reach out to me to learn more about how I guide buyers and sellers through every step of a Big Sky transaction.