What is the purpose of a contingency addendum in a residential contract?

A contingency addendum in a residential contract is primarily designed to outline specific conditions that must be met for the contract to remain valid. One of the common uses of a contingency addendum is to facilitate the sale of another property. This is particularly relevant when a buyer needs to sell their current home in order to finance the purchase of a new one.

In this case, the contingency stipulates that the buyer’s obligation to complete the purchase of the new property is contingent upon the successful sale of their existing home. If the existing home does not sell within a specified timeframe, the buyer has the right to withdraw from the purchase without facing penalties, thereby protecting their interests.

The other options relate to different aspects of a real estate transaction but do not accurately capture the primary function of a contingency addendum. Specifying loan terms primarily falls under loan documentation, while property inspection conditions usually have their own separate clauses. Defining closing procedures is part of the overall contractual agreement but is not the primary purpose of a contingency addendum.