What Does Contingent Mean in a House for Sale?

 

The real estate world has its own kind of complexity. From how to buy a house to the tiny details such as the word, “pending” and  “contingent.” Coming across this word means that you have looked through some listings and saw this word and thought you might want to learn what this means before you proceed.

Befor making a big transaction, it is the best way to make sure you are getting your money’s worth because it means you have saved up years worth money and sacrifices and you are not just going to spend it carelessly.

Buying a house is the biggest investment an average american can have. It might even be the biggest asset a person has.

 

What Does Contingent Mean in a House for Sale?

When a home is marked “contingent” it means the seller has agreed to an offer of his property. But, this does not mean you cannot make any more offer because it could still fall through. Contingent means certain conditions need to be met first before it proceeds to the next step which is pending.

Some of these contingencies are commonly inspections, financing, appraisals, and inspections. A property in this status is still or can be viewed in the market. Which means, other buyers’ offer might still be accepted as “backup offer” just in case the first deal doesn’t work out.

So when you see a listing marked as “contingent,” it doesn’t mean the house is sold. It simply means the seller is waiting for all the agreed-upon conditions to be met before calling it a done deal.

Common Types of Contingencies

Real Estate deals must be built on trust because it involves a person’s hard earned money and a persons property. Which is why contingencies are devised to keep trust of both parties intact. They act as safety nets; should one party be insolvent or not compliant, the other party is protected against it.

According to Kaplan Real Estate Education, these are the most common types of contingencies you’ll find in a home purchase:

1. Inspection Contingency
Typically, the buyer gets the home professionally inspected if the seller have not had his property inspected beforehand. This keeps the buyer from purchasing a property in bad condition. Home inspections determine whether there are roof damage, electrical problems, or plumbing leaks.

2. Financing Contingency
This ensures that the buyer can actually afford the house by getting approved. It protects the seller from a buyer without financial capability and it also protects the buyer from being locked into a purchase they can’t afford.

3. Appraisal Contingency
Appraisal ensures the home’s appraised value is the right or actual value of the property. Usually conducted by a third party, or a professional appraiser. It helps both parties to determine if the buyer should pay more or less or if the seller could lower their price. This depends on how they negotiate.

4. Home Sale Contingency
This contingency applies only to the buyer wherein they are required to sell their house first before they can buy another one or the current property they are interested in. This allows the seller to be assured that the buyers have enough margin to buy the property on sale.

The purpose of these common contingencies are for the protection of everyone involved in a real esate deal. Sure there is trust in most real estate transactions but you can never really say that every deal has been properly conducted solely based on trust. Which is why these contingencies exist.

 

What Happens When a Home Is Contingent?

The property is marked contingent if the seller has accepted an offer BUT on certain conditions.  The house is not sold yet, in fact a property marked as contingent is still the initial phase of buy a property. As mentioned earlier, this is the time when the buyer secures these things typically:

• Getting a loan approved from their lender
   
• Scheduling a professional home inspection
   
• Waiting for the appraisal to confirm the home’s value
   
• Selling their own home if it’s part of the agreement
   

Now if all of these have been met, the property now proceeds to being pending. Now the most frequently asked question remains, what if the buyer is not able to satisfy just one of these contingencies? The answer would be: the buyer may cancel the agreement without losing their earnest money (deposit). Then after this phase, the seller will be back to accepting offers again.

 

What Can Cause a Contingent Deal to Fall Through?

This phase ensures both the buyer and seller are legitimate in their interest as to buying and selling respectively. The stage filters fake buyers and fake sellers and has to go through stages to make sure that everything is legitimate. Even so, the deal could still fail. It doesn’t mean they are now labeled as bogus but simply there are things that they have failed to comply thus the failed transaction.

Here are some of the most common reasons why a contingent deal might fall through:

1. Failed Home Inspection
Sometimes, an inspection uncovers serious issues like foundation cracks, water damage, or faulty wiring. If the buyer and seller can’t agree on repairs or a price adjustment, the buyer may decide to back out.

2. Financing Problems
Even if a buyer is pre-approved for a loan, things can change. The lender might reject the mortgage due to credit issues, job changes, or a home that doesn’t meet lending requirements. Without financing, the deal can’t move forward.

3. Low Appraisal Value
If the home’s appraised value comes in lower than the agreed purchase price, it can cause big problems. The buyer may not be able to secure enough financing, and the seller might refuse to lower the price.

4. Buyer’s Home Doesn’t Sell
In the buyer’s perspective where one of the contingencies mentioned or agreed upon is home sale contingency, there is a chance that the house of the buyer may not be sold on time.

5. Title or Legal Issues
The buyer hires a title inspector to search for issues regarding the title of the property. If the inspector finds issues that could be a lot of headache for the potentia buyer then the deal is cancelled.

6. Deadlines

If you (buyer) are not able to complete or satisfy the contingencies in the most reasonable amount of time, then the deal may fall through. Especially when the timeframe is stipulated specifically in the agreement you signed.

 

What Should Sellers Do During the Contingent Period?

 

1. Do Not Bar the Buyer From Inspecting Your House
If you are not confident of having your home inspected by the buyer, then unfortunately it is typically part of the buying process and during this time, the buyer has already put his “earnest money” in escrow. So your job at this point is to allow the buyer to inspect the property.

2. Be Ready for Negotiations
Most of the time, there are going to be issues found on the house especially if the sellers haven’t been keen on maintaining their property. So, prepare for some renegotiations if issues are found especially if major ones. If you have been deligently maintaining it, then there is no need to worry that much.

3. Consider Backup Offers
You are not prohibited in accepting backup offers because the contingent stage is not an assurance that the sale will be sure. Accept backup offers but prioritize the current offer in contingent.

4. Stay Patient and Still Market Your Property
Allow the contingencies to run their course. You can still market your property which is why you are still allowed to accept backup offers if you are using a kick out clause.

 

Bottom Line

Simply put, contingent means there are certain “contingencies” — or things that need to be done first — before both the buyer and seller can move forward to the next part, which is the pending stage of the sale where all conditions are met and the deal is almost ready to close.

It is actually a win-win scenario for both the buyers and sellers for having contingencies before finalizing the sale. Because at this stage, is where the buyer finds out if the house is in good condition, the house is priced what it is actually worth, and for the seller, it gives more assurance because the buyer will have to go through stages to make sure their interest is legitimate and if they really have the money to buy the property.

 

 

 

 

 

 

 

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