Understanding the terminology used in real estate transactions is crucial, mainly when terms like "contingent" come into play. In buying and selling homes, "contingent" indicates that certain conditions must be met for the sale to proceed smoothly. This guide will provide a detailed exploration of what "contingent" means in real estate, how contingencies affect transactions, and how sellers can best navigate these situations.
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What Does Contingent Mean in Real Estate?
In real estate, "contingent" refers to a status where a seller has accepted an offer from a buyer, but the sale is not yet final. It means certain conditions or contingencies must be met before the transaction can be completed. If these contingencies are not satisfied, the buyer can withdraw from the agreement without facing legal consequences.
Cotingencies are safety nets in real estate contracts to ensure both parties can fulfill their obligations without unexpected complications. Common real estate contingencies cover financing, inspections, appraisals, and the buyer's need to sell their home.
Types of Contingencies in Real Estate
Understanding the various types of contingencies in a real estate contract is key to grasping what can affect a home sale. Below are the most common types of contingencies:
1. Home Inspection Contingency
A home inspection contingency allows the buyer to have a professional inspect the property to ensure it is in good condition. Inspection typically involves evaluating the home's structure, electrical system, plumbing, HVAC, and other components. If significant issues are found, the buyer can:
Request repairs or a credit to address the problems.
Renegotiate the sale price.
Withdraw from the sale without penalties.
This contingency protects buyers from problems that could lead to high repair costs.
2. Financing Contingency
A financing contingency, or a mortgage contingency, ensures the buyer can secure the necessary financing to purchase the property. This clause gives the buyer time to apply for and obtain a mortgage. If the buyer cannot secure financing within a specified timeframe, they can cancel the contract.
3. Appraisal Contingency
An appraisal contingency ensures the home's value meets or exceeds the agreed-upon sale price. The lender will require an appraisal to determine the property's market value. If the appraisal comes in lower than the purchase price, the buyer has several options, such as:
Negotiating with the seller to reduce the price.
Paying the difference between the appraisal value and the sale price.
Canceling the deal.
This contingency helps buyers avoid overpaying for a property and protects lenders from lending more money than the property is worth.
4. Sale of Current Home Contingency
In some situations, a buyer may need to sell their existing home before they can proceed with purchasing a new one. The sale of the current home contingency allows buyers to back out of the deal if they cannot sell their home within a specified period. This provides financial flexibility for buyers and prevents them from owning two homes simultaneously.
5. Title Contingency
A title contingency protects the buyer by ensuring no legal issues with the property title. Before the sale can close, a title search is conducted to confirm that the property is free from liens, disputes, or encumbrances that could affect ownership. If issues arise, the buyer can choose to walk away from the deal or ask the seller to resolve these problems.
Contingent Status Explained: Different Levels
The term "contingent" can represent different statuses during a real estate transaction, each with implications. These statuses help buyers and agents understand the likelihood of a deal closing. Here are some common contingent statuses:
Contingent: Continue to Show
When a property is listed as "Contingent: Continue to Show," the seller has accepted an offer, but contingencies are still pending. The seller keeps the property available for showings, hoping to receive backup offers if the original deal falls through.
Contingent: No Show
"Contingent: No Show" means that the property has an accepted offer, and the seller is confident that all contingencies will be met. As such, they are no longer showing the home to potential buyers.
Contingent: Kick-Out
In a "Contingent: Kick-Out" status, the seller has accepted an offer that includes certain contingencies, such as the buyer needing to sell their current home. However, the seller reserves the right to "kick out" this offer if a more favorable one comes along. The original buyer typically has a specified period to remove their contingencies or back out of the sale.
Contingent: Short Sale
A "Contingent: Short Sale" status indicates that the seller is trying to sell the property for less than the amount owed on the mortgage, and they need lender approval to proceed. These transactions can take longer due to the need for lender involvement.
How Do Contingencies Impact Buyers and Sellers?
For Buyers
Contingencies provide critical protections for buyers. They ensure buyers aren't locked into a contract if they cannot secure financing, uncover significant property defects, or face other unforeseen circumstances. However, buyers need to be aware that including too many contingencies can make their offer less attractive to sellers in competitive markets.
For Sellers
From a seller's perspective, contingencies represent uncertainty. While contingencies protect buyers, they also mean that a deal could fall through at any moment if conditions aren't met. Sellers often prefer fewer contingencies, especially in a competitive market where multiple offers might come in. They may prioritize buyers willing to waive contingencies or reduce their scope.
Contingent vs. Pending: Understanding the Difference
People often confuse "contingent" with "pending," but they represent different stages in a real estate transaction.
Contingent: The seller has accepted an offer, but certain contingencies must be met before proceeding.
Pending: All contingencies have been satisfied, and the deal is moving toward closing.
In other words, a "pending" status signifies that the transaction is much closer to completion than a "contingent" status.
Strategies for Buyers to Win a Contingent Property
Securing a contingent property can be challenging, especially in a hot market. Here are some strategies to help:
Submit a Backup Offer: You can submit a backup offer if a property is listed as contingent. Your offer might be next in line if the current deal falls through.
Remove or Waive Contingencies: If you're confident in your financial position and the property's condition, waiving certain contingencies (like financing or inspection) can make your offer more attractive.
Increase Earnest Money: Increasing the earnest money deposit can demonstrate your commitment and signal to the seller that you are serious about closing the deal.
Frequently Asked Questions About Contingent Properties
1. What Does Contingent Mean in Real Estate?
In real estate, "contingent" means that a seller has accepted an offer, but specific conditions or contingencies must be met before the sale can be finalized. These contingencies protect buyers and sellers by ensuring certain obligations are fulfilled.
2. Can You Make an Offer on a Contingent Home?
Yes, you can make an offer on a contingent home. However, your offer will typically be considered a backup, meaning the seller will only consider it if the original deal falls through.
3. How Long Can a Property Stay Contingent?
The length of time a property stays contingent depends on the contingencies involved. Some contingencies, like financing, may take a few weeks, while others, like selling the buyer's current home, could take longer. Typically, properties remain in a contingent status for 30 to 60 days.
4. Can a Seller Accept Another Offer While Under Contract?
The seller can accept another offer if the contract includes a "kick-out" clause. Otherwise, they must proceed with the original buyer unless that buyer fails to meet the contingencies.
The term "contingent" is pivotal in how real estate transactions unfold. Contingencies act as safeguards, ensuring buyers and sellers are protected against unforeseen circumstances. For sellers, managing contingencies is balancing protection to close the sale quickly and efficiently.
Navigating the intricacies of contingent statuses and contingency clauses can be complex, but a well-informed approach helps ensure smoother real estate transactions. Understanding contingencies and their implications is critical to a successful home-selling experience.
Ready to make informed decisions in your real estate journey? Reach out to our team for personalized assistance. With over 12,500 positive reviews, Mark Spain Real Estate is grateful to be the #1 most-reviewed real estate brokerage in the United States on Zillow.
