A clause that allows a buyer or seller to pull out of a contract for a specific reason

Contingencies serve to protect you against getting stuck in a bad deal or unfavorable situation – think of them as an escape door. Three common contingencies used by buyers when making an offer are: (1) a property inspection clause, which says a deal is contingent on a thumbs-up inspection of the home and grounds (2) a financing clause that lets you bow out of a deal if your loan isn't approved and lastly (3) a clause that gives you an out if the property's appraised value falls short of the selling price. Sellers often include a contingency clause in the contract giving the buyer a deadline to get an approval on a loan.