Question about contingencies

[Derrick Strope]

One part of the contracting process that I am not terribly sure I completely understand is the use of contingencies.  Of course, I never want something like this to happen but lets say I land myself in an unfortunate scenario where my repair costs were underestimated and I am unable to source a buyer for a property.

Assuming I put a thousand into escrow for earnest money and I had a inspection contingency in my contract - how do I exit the deal if we are unable to negotiate any further?

Will an addendum need to be signed by both the seller and myself? How do I officially release any liabilities of myself from a P&S should my contingencies not be met? Does this need to be filed anywhere or do I just contact escrow and notify them I am no longer interested in the property due to X reason.

I did some searching on this but did not locate anything that clarified the answer for me.