What Is a Settlement Contingency in Real Estate?

A settlement contingency is a clause that allows a buyer to move forward with purchasing a home only if the sale of their current home successfully closes. It protects buyers from owning two homes at once and protects sellers from buyers whose home sale might fall through.

✅ How a Settlement Contingency Works

Buyers use a settlement contingency when they have already accepted an offer on their current home but the sale has not yet closed. The purchase of the new home depends on:

  • The buyer’s current home closing on time
  • No financing issues for the buyer’s buyer
  • No inspection, appraisal, or title delays in the first transaction

If the buyer’s existing home fails to close, the settlement contingency allows them to cancel the new purchase without losing their earnest money.

💡 How a Settlement Contingency Differs from a Home Sale Contingency

Many sellers aren’t aware there’s a difference. Here’s the breakdown:

  • Home Sale Contingency: Buyer still needs to find a buyer for their current home.
  • Settlement Contingency: Buyer already has an accepted offer and is waiting for closing.

The settlement contingency is stronger and less risky for sellers because the buyer already has a contract in hand.

Learn more about home sale contingencies here:
Home Sale Contingency & Kick-Out Clause Explained

📍 FSBO Tip: Verify the Buyer’s Existing Contract

As a FSBO seller, always ask your buyer for:

  • A copy of the executed purchase agreement on their current home
  • The scheduled closing date
  • Status of inspections and appraisal
  • Proof that the buyer’s buyer is fully approved for financing

This reduces risk and ensures the settlement contingency is legitimate.

⚠️ Risks for Sellers

  • Delays in the buyer’s closing can delay your closing
  • If the buyer’s sale falls through, your deal may collapse
  • You may miss out on stronger offers during the contingency period

Many sellers protect themselves using a kick-out clause, allowing them to accept backup offers.

Browse more definitions in our Real Estate Dictionary.

Selling Your Home FSBO?

List on the MLS without paying 3% listing commission. Reach buyers on Realtor.com, Zillow, and hundreds of IDX sites.

View Flat Fee MLS Packages →