What Does Contingent Mean In Real Estate?

Whether you are the buyer or the seller in a real estate transaction, you probably already know that there are a bunch of things that can slow down the process, and you don’t necessarily want to expecting for a sale to close, just to figure out that it either won’t, or it will take significantly longer to close the sale than you were hoping for. 

Although you may be hoping to get out of that rental apartment that you have and move into your brand new home, there may just be certain things that could change the rate at which you are able to do so. Since 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 just be the reason why the timeline you were hoping for isn’t in fact realistic. 

Yes, while there are many reasons why you may want to buy a home rather than building your own one, you should be aware of the various things that could end up slowing it down and causing you to suddenly be without a roof over your head if you were either planning on moving over, or your lease on your existing place is set to expire at a specific time. We wrote an article recently where we compared the cost of  building a home vs buying a home, and some of the advantages and disadvantages to both, and we also encourage you to read that article if you are still in the process of figuring out whether one is right for you over the other. Our verdict: buying a home is definitely a safer bet if you are on a stricter timeline that you need to adhere to, even if the home does end up having lead paint in it. 

However, that may have just been a little side step in our pursuit to help you get better educated on what it actually 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 with regards to how far along a sale of a house is, and another one that you will also come by when starting your search is probably “pending” or “contingent”. While these terms are common terms in the English language, they do have very specific meanings when it comes to real estate and how far along a sale is there. By better understanding the various terminology that you will be likely to encounter in your search, you may also be able to make quicker and better decisions as to whether you should keep looking into a house that you found which you really like, or whether you should be focusing your energy on something else instead. 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 that you won’t realistically have a chance at getting it anyway. 

However, just because there’s a contingency clause, it 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. For instance, California has significantly stricter landlord laws than do a bunch of other states, and the same can also be the case when it comes to 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. Given the fact that our company is situated in North Carolina, it would make a lot of sense for us to go with a company like this one that has proven that they are able to actually 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, and in some states the word contingent just means that you have a better chance than in other states. It is usually a clause that is added in the paperwork for the sake of a buyer because you would want to make sure something doesn’t come up that is a dealbreaker. While 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 a lot of articles on this blog on the topic of lead paint and poisoning, and 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 that are still likely to put anything in their mouth that they will get their hands on. While 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 a lot of homebuyers may at least want a contingency in the contract allowing them to retract their offer if the material is found in the walls. The contingency conditions are therefore conditions that could end up meaning that the sale you were hoping for never actually ends up materializing, and if you are the one that is contingently buying a home, you will want to make sure that it is worded accurately, in case you do want to be able 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, but the word is more so a descriptor of where in the process the sale is at. There are different types that you should be aware of, that each come with different obligations and requirements. Certain types of contingencies are more likely to go through than others, so if you are still browsing homes, this may help you decide whether a home warrants spending your time on or whether you should be moving on. For instance, in North Carolina, a home that is marked contingent is in fact very likely to get to the finalization and reach the closing table. As the article we previously mentioned points out, if a home is contingent, then this is a situation where it is only the buyer that is able to back out, as it limits the options that the seller has. 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 do, and it is often linked to the market conditions, where it is just very unlikely to happen if it is generally a market where there is a very short supply of houses, as is often the case when a city is experiencing significant growth, and the various building companies operating there aren’t able to 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 a house, which in addition is a very important step just to make sure that you are actually able to afford the type of home that you are hoping to buy. It would be a shame to start looking for a house just to find out that your budget is significantly lower than the type of home that you have been looking at. While a preapproval is a good step in the right direction to make sure that a home in fact does end up selling, it is also one of the types of contingencies that result in offers on houses not actually managing to go through. A mortgage contingency simply means that you in fact do need to be able to get the mortgage from a mortgage provider so that you don’t have to finance the purchase out of pocket. Because a preapproval letter isn’t an actual guarantee that a lender will be able to provide you with the funds, but rather an indication that you are likely to be able to get the mortgage for the home, there are situations where a preapproval letter doesn’t in fact guarantee the funding, which will in turn likely mean that a buyer can’t proceed with their intention of going through and are instead having to walk away from the home that they really wanted. Changes to interest rates also mean that you may not be able to afford the home you thought you could, and 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 that was offered to them and an offer that they chose to accept, the contingency may just be what blocks the sale from going through. However, it is when an offer is accepted that the status ends up being changed to contingent, but before the final sale actually makes it all the way through closing. It is important to know that contingent and pending don’t actually mean the same things, and that pending will mean that all the conditions have been met, but the final closing and paperwork haven’t fully been processed. When a sale is pending, other buyers are not able to 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, but the bad news is that the buyer may not be able to accept it. When this is the designation that is used, the listing is in fact active, and the closing of the deal isn’t guaranteed, although it is still likely to happen in a lot of situations. However, 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 that they are able to sell the home that they are currently in, and if that is the case, a seller may still be able to consider other offers in some states, as you never know when exactly the buyer’s house will be able to sell. 

If you are the seller in a situation and you additionally 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, and while 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. However, while it is a possibility for a seller to accept such conditions, it is up to the seller to actually decide if that is something they feel comfortable doing or not. In theory, a buyer could create a wide list of contingencies that a sale depends on, but at the end of the day, there is a different part of the transaction also that has to 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. In a lot of situations, a contingency may provide the buyer with a range of possibilities, but contingencies may also mean that the seller is still able to receive offers from other buyers, and it could mean that the seller is giving the buyer the possibility to either proceed with the transaction or not, although requiring them to remove the contingency. This may allow the seller to accept other types of contingencies than they would otherwise accept, assuming they are given the option to still 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, which in all its essence is fair to a seller who can then also figure out their specific living situation, not having to wait for the buyer’s home to sell.

Common contingencies and thoughts for a seller.

We have obviously gone over the fact that there are a bunch of reasons why a sale may be contingent, but as you will know by know there could theoretically be an endless number of reasons why this may be the situation, and it really is something that depends on what the seller and the buyer have negotiated, as well as what is common in the area that you live in.

There are various market conditions where different types of contingencies may either 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, where we go through some of the most common questions you should be asking yourself throughout this entire process.

However, as mentioned there are different market conditions that may permit that a seller is more or less willing to accept an offer that has a lot of contingencies tied to it. For instance, if you are living in a place where there is not a lot of houses on the market, while 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 and would be better off going with an offer that may otherwise be a little bit lower than the other offer, while there are fewer contingencies and reasons why it may look as if the offer isn’t likely to go through. Every time 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, or whether you would be better off choosing another offer instead.

If you’re a seller and you get multiple offers, you have the big advantage that you can choose the offer that you think is best. Some of the most common contingencies are the ones that we will be going through below.

The one that is perhaps the most common is the financial contingency, which involves that the home buyer is actually ensuring that they are able to get the home loan to have the process go through, although it is also done in a manner which gives the seller some protection, ensuring that they can actually get out of a deal when a buyer is incapable of securing the financing for the deal.

An appraisal contingency is another one that really isn’t all that uncommon, where a buyer will make an offer on a house, while still being sure that they aren’t overbidding on the house, and having 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 usually being able to either drop the offer or lowering the price.

The need for an inspection is a common contingency, especially when a tour of the home reveals there is a lot of work that needs to be done on the property, and we have in fact dedicated an entire article to the topic of which types of repairs are fair to to request, whereas which aren’t. This article may be helpful for both buyers and sellers in ensuring that the right repairs are being requested. There are certain things that may simply not be fair to include in the list of things that need to be fixed before you are able to move into the house.

Title contingency is another common type which is naturally included to ensure that the seller is in fact able to sell the piece of property that they are claiming to be in possession of. If you are the buyer, you naturally do not want to have the first thing you have to deal with actually be the question of whether or not you were allowed to purchase the property in the first place, which could lead to some very substantial issues. Usually it is very easy for the buyer to opt out if there are any conflicting information that is revealed in this section, but if you are selling a home that you are rightfully entitled to sell, there is also no reason why this should be an issue.

Active – First Right: This comes down to being able to get out of the deal on behalf of the seller when there is an offer that comes in that is suspected of not being at the level that the seller wants it at. When the buyer cannot match other incoming offers, the seller may be able to withdraw as a consequence of this.

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, and this one will give the seller the permission to get out of the deal if it is taking the buyer too much time to get their other house matters in order.’

Common pending types

The same way that there are different types of contingencies, you can also usually get a good idea of what the holdup is in the deal, and 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 on it.

Pending – More than 4 months

While 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 the wrong direction or there are repairs that 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, but it is likely that there are lenders or banks that are now in the process of dotting their I’s.

Pending – Taking Backups

This will in fact indicate that the seller is taking backup offers because something ended up causing a great deal of issues with the first offer.

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