A condition in a contract that must be satisfied before the parties are obligated to complete the transaction.
Why Contingency matters on the exam
This term belongs to Contracts. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Contingency
Every Freehold question shows why the right answer is right — and cites its source.
A buyer submits an initial earnest money deposit and later submits an additional deposit after a contingency is removed. The broker should:
Create a brand-new ledger for the second deposit, treating it as a separate matter
Record both deposits on that buyer's same individual ledger to maintain a complete transaction history
Combine the buyer's funds with another client's ledger for simplicity
Avoid recording the second deposit until closing
Show answer & explanation
Record both deposits on that buyer's same individual ledger to maintain a complete transaction history — All deposits and disbursements tied to one client's transaction belong on that client's individual ledger so there is a single, complete, and accurate record of their trust funds.
Source: PSI National Real Estate Exam Content Outline — Broker Supplement
A purchase contract falls through before closing due to a failed contingency. Should the brokerage retain records related to that transaction?
No, only transactions that fully close ever trigger any recordkeeping obligation at all
Only if the buyer specifically and separately requests it from the brokerage in writing
No, records for a terminated contract of this kind may be shredded immediately
Yes, many license laws require retention of records for transactions that did not close, not just consummated sales
Show answer & explanation
Yes, many license laws require retention of records for transactions that did not close, not just consummated sales — Many state recordkeeping rules cover both completed and terminated transactions, since disputes or investigations can arise even from deals that never closed.
Source: PSI National Real Estate Exam Content Outline — Broker Supplement
A financing contingency in a purchase agreement is designed to protect the:
Buyer, by allowing the buyer to cancel the contract without penalty if unable to obtain the specified loan
Seller, by fully and permanently guaranteeing the exact sale price stated in the executed purchase agreement itself
Lender, by guaranteeing repayment of the loan regardless of default
Broker, by guaranteeing that the full commission is earned as soon as any offer is accepted by the seller in writing
Show answer & explanation
Buyer, by allowing the buyer to cancel the contract without penalty if unable to obtain the specified loan — A financing contingency protects the buyer by making the contract conditional on obtaining suitable loan approval, permitting cancellation without forfeiting earnest money if financing cannot be secured.
Source: PSI National Real Estate Exam Content Outline §7 Contracts
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