Whether you are the buyer or the seller in a real estate transaction, you probably already know that many things can slow down the process. You don’t necessarily want to expect a sale to close and figure out that it either won’t. Maybe it will take significantly longer to close the sale than you were hoping for.
You may be hoping to get out of that rental apartment that you have and move into your brand new home. There may be certain things that could change the rate you can do so.
We are a website selling lead paint test kits. You are probably not surprised to find out that the presence of this heavy metal could be why the timeline you were hoping for isn’t realistic.
There are many reasons you may want to buy a home rather than build one. You should be aware of the various things that could end up slowing it down. It could cause you to suddenly be without a roof over your head if you were either planning on moving over.
Maybe your lease on your existing place is set to expire at a specific time. We wrote an article comparing the cost of building a home versus buying a home.
It includes the advantages and disadvantages to both. We encourage you to read that article to determine whether one is right for you over the other. Our verdict is that buying a home is a safer bet if you are on a stricter timeline that you need to adhere to. It’s even if the home does end up having lead paint in it.
It may have just been a little sidestep in our pursuit to help you get better educated. By the end, you’ll know what it means for a home to be contingent when it comes to real estate purposes.
While you are likely aware of the terms “for sale” and “closed,” those aren’t the only two terms regarding how far along a sale of a house is. Another one that you will also come by when starting your search is probably “pending” or “contingent.”
While these terms are common in the English language, they have specific meanings for real estate and how far along with a sale. By better understanding the various terminology, you can make quicker and better decisions in the homebuying process.
You’ll know whether you should keep looking into a house you found or focus your energy on something else instead. Maybe it ends up not making a whole lot of sense to put in an offer on a home if you already know that they are probably so far along with the sale. Maybe you won’t have a chance at getting it anyway.
However, just because there’s a contingency clause doesn’t mean there isn’t a chance that a home purchase won’t go through. The laws concerning contingencies vary, the same way that rental laws vary from state to state.
California has significantly stricter landlord laws than do a bunch of other states. The same can also be the case regarding contingency laws regarding real estate sales. For that reason, it is a good idea that you choose a real estate agent who is familiar with your local laws and what they mean specifically.
Our company is situated in North Carolina. It would make a lot of sense to go with a company like this that has proven to provide the necessary guidance for a prospective buyer. Before you put that final signature on the paper, things may come up that block a sale from going through.
In some states, the word contingent means having a better chance than in other states. It is usually a clause that is added to the paperwork for the sake of a buyer. It’s because you would want to make sure something doesn’t come up that is a dealbreaker. The presence of lead shouldn’t necessarily be a dealbreaker if you’re buying a house. It could at least end up bringing the two parties back to the table.
We’ve written many articles on this blog on the topic of lead paint and poisoning. You may be in a situation where you don’t want to live in a home that contains this type of paint if you have smaller children. They are still likely to put anything in their mouth that they will get their hands on.
Lead paint isn’t necessarily bad to be around for as long as the paint isn’t damaged. It’s one of the situations in which many homebuyers may at least want a contingency in the contract. It could allow you to retract your offer if the material is found in the walls.
The contingency conditions are conditions that could end up meaning that the sale you were hoping for never actually ends up materializing. Suppose you are the one that is contingently buying a home. You will want to make sure that it is worded accurately if you want to get out of the decision under certain circumstances.
What should you be expecting if a home is marked contingent when you are searching around?
As you may have understood from the previous section, there isn’t just one type of contingency. The word is more a descriptor of where the sale is at in the process. You should be aware of different types, and each comes with different obligations and requirements.
Certain types of contingencies are more likely to go through than others. If you are still browsing homes, this may help you decide whether home warrants spending your time. In North Carolina, a marked contingent home is likely to get to the finalization and reach the closing table.
If a home is contingent, this is a situation where only the buyer can back out, limiting the seller’s options. They cannot just keep shopping for different offers, which may be nice to know if you’re the buyer hoping to move into the home. Some markets may also be more prone to having offers fall through than others.
It is often linked to market conditions. It is very unlikely to happen if it is generally a market with a very short supply of houses. It is often the case when a city is experiencing significant growth. The various building companies operating there can’t make houses as fast as the market needs them.
The usual situation involved in buying a home includes a buyer getting a mortgage preapproval before an offer is submitted on the house. It is an important step to ensure that you can afford the type of home you hope to buy.
It would be a shame to start looking for a house to find out that your budget is significantly lower than the type of home you have been looking at. A preapproval is a good step in the right direction to make sure that a home does end up selling. It is also one of the contingencies that result in offers on houses not managing to go through.
A mortgage contingency means you do need to get the mortgage from a mortgage provider so that you don’t have to finance the purchase out of pocket. A preapproval letter isn’t an actual guarantee that a lender will provide you with the funds. It’s an indication that you are likely to get the mortgage for the home.
There are situations where a preapproval letter doesn’t guarantee the funding. It will likely mean that a buyer can’t proceed with their intention of going through and instead has to walk away from the home they wanted. Changes to interest rates also mean that you may not be able to afford the home you thought you could. If interest rates go up, these types of contingency contracts are more likely to not result in the transaction being a success.
If the buyer has a contract offered to them and an offer they choose to accept, the contingency may block the sale from going through. When an offer is accepted, the status is changed to contingent. It’s done before the final sale makes it through closing.
Know that contingent, and pending don’t mean the same things. Pending will mean that all the conditions have been met. Still, the final closing and paperwork haven’t fully been processed. When a sale is pending, other buyers cannot place offers on the home.
So, should you place an offer on a home that is contingent?
The good news is that you may be able to place an offer on a home that is currently listed as contingent. The bad news is that the buyer may not accept it. When this designation is used, the listing is active. The deal’s closing isn’t guaranteed.
However, it is still likely to happen in a lot of situations. Provisions, repairs, and other contingencies may be making it unlikely that the deal falls through. It still is a possibility. Some buyers will make it a contingency to sell the home they are currently in. If that is the case, a seller may still consider other offers in some states. You never know when exactly the buyer’s house will be able to sell.
Suppose you are the seller in a situation. You also have a fairly strict timeline that you are operating under. There may be a lot of situations where you wouldn’t want to accept an offer that is contingent on the buyer being able to sell their home.
If you received 10 different offers on your home, chances are you will be able to sell it. It may also mean that you are situated in a strong real estate market where a buyer will also be able to sell their home. You may not necessarily want to be dependent on some other transaction going through for yours to go through as well.
A seller can accept such conditions. It is up to the seller to decide if they feel comfortable doing it. In theory, a buyer could create a comprehensive list of contingencies that a sale depends on. Still, a different part of the transaction must agree with those contingencies. When all has been said and done, a contingent deal changes to pending.
That means it’s all in the clear, and the final closing is coming right up. A contingency may provide the buyer with a range of possibilities in many situations. However, contingencies may also mean that the seller can still receive offers from other buyers. It could mean that the seller is giving the buyer the possibility to either proceed with the transaction or not. It requires them to remove the contingency.
This may allow the seller to accept other contingencies than they would otherwise accept. It assumes they are still given the option to consider other offers on the home. Usually, a buyer will receive one or two days to figure out whether or not they are willing to forego their contingency. It is fair to a seller who can then figure out their specific living situation, not waiting for the buyer’s home to sell.
Common contingencies and thoughts for a seller.
We have gone over the fact that there are many reasons why a sale may be contingent. As you will know by now, there could theoretically be an endless number of reasons why this may be the situation. It depends on what the seller and the buyer have negotiated. What is common in the area you live in?
There are various market conditions where contingencies may be more or less common.
While you are here, we also want you to read this article that we wrote that has been gaining popularity on whether it is cheaper to buy or build a home. We go through some of the most common questions you should be asking yourself throughout this entire process.
As mentioned, different market conditions may permit a seller to be more or less willing to accept an offer with a lot of contingencies. Maybe you are living in a place where there are not many houses on the market.
There are still a lot of people that are interested in buying a house. A seller may not be willing to accept an offer that has a lot of contingencies tied to it. They may be better off going with an offer that may otherwise be a little bit lower than the other offer. At the same time, there are fewer contingencies and reasons why it may look as if the offer isn’t likely to go through.
There is a reason why the offer may not be going through. You might want to ask yourself if it is the right choice for you to choose that offer anyway. Maybe you would be better off choosing another offer instead.
If you’re a seller and you get multiple offers, you have a big advantage in choosing the offer you think is best. Some of the most common contingencies are the ones we will be going through below.
The one that is perhaps the most common is the financing contingency. It involves the home buyer is ensuring that they can get the home loan to have the process go through. It is also done to give the seller some protection. It ensures that they can get out of a deal when a buyer is incapable of securing the financing for the deal.
An appraisal contingency is another one that isn’t all that uncommon. A buyer will make an offer on the house while ensuring they aren’t overbidding on the house. They have the offer being contingent on a 3rd party’s valuation of the home. When the appraisal comes in at a lower value, the buyer will be left with certain options but can drop the offer or lower the price.
The need for an inspection is a common contingency. It’s where a tour of the home reveals that a lot of work may need to be done on the property.
We have dedicated an entire article to which types of repairs are fair to request, whereas which aren’t. This article may be helpful for both buyers and sellers to ensure that the right repairs are being requested. Certain things may not be fair to include in the list of things that need to be fixed before you can move into the house.
Title contingency is another common type that is naturally included to ensure that the seller can sell the property they claim to have. If you are the buyer, you do not want to have to deal with the question of whether or not you were allowed to purchase the property in the first place.
It could lead to some very substantial issues. Usually, it is very easy for the buyer to opt out if any conflicting information is revealed in this section. If you are selling a home that you are rightfully entitled to sell, there is no reason why this should be an issue.
Active – First Right
This comes down to getting out of the deal on behalf of the seller. It’s when an offer is suspected of not being at the level the seller wants it. When the buyer cannot match other incoming offers, the seller may withdraw.
Active – kick out
A buyer may be in a position of having to sell the home that they are currently living in before they are willing to buy another one. This one will permit the seller to get out of the deal if it takes too much time to get their other house matters in order.’
Common pending types
In the same way that there are different contingencies, you can also usually get a good idea of the holdup in the deal. Know whether or not you could realistically have a chance at coming in and getting the house instead of the people that put in the existing offer.
Pending – More than 4 months
Both home buyers and home sellers may be in a situation of wanting to get the deal done. There are instances where everything takes longer than expected. Perhaps negotiations started going in the wrong direction. Maybe some repairs haven’t been achieved the way they should have, why it has now taken more than 4 months.
Pending – short sale
With this status, the offer will already have been accepted. There are likely lenders or banks that are now in the process of dotting their I’s.
Pending – Taking Backups
This will indicate that the seller is taking backup offers because something ended up causing many issues with the first offer.