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What Does Contingent Mean in Real Estate Sales

By Bill Gassett | November 11, 2020

The Definition of Contingent

Do you know what contingent means when either buying or selling a home? If not, you should! When you begin an online search for a home, you may find some sale statuses you don't fully understand. It is fairly obvious what is meant when homes have a status of “for sale” or “sold,” but some statuses may not be as clear.

For example, if a home sale is contingent or pending, can you still make an offer? Let's take a closer look at the meaning of contingent, so you can see how it might affect a home you are looking to buy.

If you are selling a home, there are also some ramifications you should know about as well. How your real estate agent markets your property when an offer has been accepted can have vital implications.

For example, some agents will mark your home contingent, while others will mark pending. You'll see an explanation of both a little bit later.

What's the meaning of contingent?
What's The Meaning of Contingent?

What does Contingent Mean?

Understanding the meaning of contingent is key. When a home sale is listed as contingent, it means that the seller has accepted an offer with contingencies. This means that certain clauses have to be completed, by perhaps both buyer and the seller, for the sale to close.

If these contingencies aren't met, the buyer can walk away from the deal. They will also get their earnest money deposit back, and the home will go back on the market.

The home could be subject to a few different types of contingency. Let's have a look at the most common types of contingency you are likely to see.

Home Inspection Contingency

The purchase of the property can be contingent on the home inspector’s report. Naturally, the buyer doesn't want to buy a property that has problems, so this contingency helps prevent that. If the home requires some repairs, the price can be renegotiated, or the seller can fix the issues.

Home inspections are one of the biggest hurdles in home sales. It is not uncommon for a home to go from being market "contingent" to "back on the market" because of some issues discovered from the home inspection.

Understanding how a home inspection works is essential for both buyers and sellers, given the importance of this real estate transaction phase.

Home Sale Contingency

If the buyer still needs to sell their home before they can close on the new property, a home sale contingency can be put in place. This gives the buyer a certain amount of time to find their own buyer so that they have the funds to purchase the new property.

Most of the time, a home sale contingency clause does not really benefit the seller. By accepting a home sale contingency, you lose control of the process of selling your home. You are relying on the buyer who wants to purchase your home sets the right price for their own property.

Will the buyer have an exceptional real estate agent? Will they be marketing the home properly? These are the types of questions you need to ask yourself before accepting a home sale contingency.

If you follow all of the proper steps in selling a home, you will never have to worry about accepting an offer with a home sale clause.

Appraisal Contingency

This contingency is often required by lenders to make sure the home is worth what the buyer has offered for it. Lenders don't want to loan more money than the property is worth since this will leave them in a losing position if the home goes into foreclosure.

If your home appraisal comes in lower than the offer amount, with this contingency, the buyer can walk away if they can't make up the difference.

Sometimes real estate markets heavily favor sellers. When this happens, it is not uncommon for a buyer to waive their right to an appraisal contingency.

Educating yourself on the appraisal process is something worthwhile for both buyers and sellers. These appraisal tips will help.

The Mortgage Financing Contingency

Even if the buyer has pre-approval for a mortgage, things can still go wrong when they apply for the loan. Perhaps, they have taken out a fresh loan, or their situation has changed in some other way since pre-approval. Maybe they have an unsubstantiated cash deposit?

Issues like these could lead to a buyer not getting the mortgage they expect.

While it is rarer for a home sale to fall apart because of a buyer not getting financing, it is still something where due diligence is essential.

The Standard Contingency Rarely Mentioned

One of the standard contingencies in nearly all real estate contracts is delivering a clear title. A seller is required to deliver a deed to a buyer free of encumbrances.

A few things that ensure this happening are a title search to ensure there are no liens or other title problems, putting a cloud on the title. The lender providing the mortgage will also do a property survey that makes sure that there are no structures that violate zoning laws.

land surveyor will be sent to the property to ensure there are no violations. The document provided to the buyer at closing is what's referred to as a mortgage plot plan.

Can you Make an Offer on a Contingent Home?

Most of the time, when a home is at the contingent stage, sellers are still interested in offers from other parties. Home sales that are subject to contingencies sometimes fall through. This can often happen with sale contingencies when the potential buyers home fails to sell.

If you really like a home that is at the contingent stage, you can ask your real estate agent to put in an offer. In real estate jargon, this is referred to as a "backup offer."

In order for a backup offer to kick in, the first buyer would need to relinquish their right to purchase the home. All parties would sign a release from the contract. At this point, a seller could move forward with accepting the backup offer.

As a seller, having a backup offer in hand gives you some leverage over a buyer if they start to make unreasonable demands. This would be especially true if the backup offer has stronger terms than the first offer.

Contingent vs. Pending: What's The Difference

If a home sale is marked as pending, it isn't the same as contingent. Homes change to a pending status when all the contingencies have been met. This means that the seller isn't going to be open to offers from other buyers, as might be the case with a contingent status.

The status of a home will change to pending as the final stage before closing. It means that they are waiting for the final paperwork to be completed so that they can move to closing.

However, keep in mind that in some real estate markets, pending and contingent have very similar meanings. In essence, a contract between buyer and seller has been signed. So, the only way another buyer can purchase is if the first buyer backs out.

All The Listing Statuses in The Multiple Listing Service

There is always confusion among what the various statuses mean in MLS, not just contingent. Here are some of the most common statuses you will see:

  • For Sale
  • Contingent
  • Pending
  • Back on Market
  • Accepting Back-Up Offers
  • Kick-Out Clause or Right of First Refusal

Final Thoughts on The Meaning of Contingent

Understanding the various stages that home sales go through helps you avoid fixating on a property that isn't likely to be available anymore. When you are selling a home, contingencies can be a necessary evil to find a buyer.

However, as a buyer, contingencies can offer you a lot of protection. However, you could find that you have to drop them if another purchaser comes along with a better offer.

Hopefully, you now have a better understanding of what contingent means in home sales. For a real estate agent, terms like contingent come as second nature. To a layman, however, real estate terms such as contingent can seem complicated, especially when buying or selling a home for the first time.

Real Estate agents can be helpful to first-time buyers by explaining the little things and especially terms that we take for granted. By educating a buyer throughout a transaction, you put them in a better position to be successful.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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