What Does Contingent Mean in Real Estate?
If you’re looking for a house, chances are you’ll come across listings that are classified as contingent. But what does that mean? Well, the word “contingent” means something will only happen if certain conditions are met.
We’ll explain what that means in practice and how prospective buyers should think about contingent homes.
Defining Contingent in Real Estate
In real estate, contingent is a status that means potential sale. The property will sell once certain conditions are met. However, if those conditions aren’t met, the property won’t sell. In other words, if a house is contingent, it’s in the process of being bought, but it’s not a done deal.
Contingent vs. contingencies
Contingent is a transaction status. Contingencies are specific clauses buyers can include in their offer. They’re the written-out things that need to happen for the sale to go through.
The distinction matters because a buyer can include contingencies in their offer only for it to be rejected. Then, the property wouldn’t be contingent. But if the offer is accepted, the property becomes contingent, and the sale will proceed once the contingencies are met.
Because purchasing a home is such a big expense and commitment, contingencies largely exist to protect buyers. They can allow potential buyers to do due diligence on the home, like getting a home inspection, before completing the purchase.
Types of Contingencies
Here are the most common types of real estate contingencies.
This allows the buyer to have the home professionally inspected before purchasing it. Depending on how the contingency is structured, the buyer may back out of the purchase if estimated repairs exceed a certain amount, like $15,000.
The home inspection can lead to renegotiations over the sale price or who will pay for repairs.
If a buyer is using a mortgage to purchase the home, that means the lender is fronting the bulk of the cash for it. To protect themselves, lenders will have the home appraised to make sure the house is worth what they’re paying.
If the house appraisal doesn’t match the offer, the lender might refuse to issue the loan or ask for a higher down payment. An appraisal contingency lets the buyer get out of the deal if there’s an appraisal gap they can’t cover.
If the buyer plans to use the funds from selling their current home to purchase a new one, they can make their offer contingent on their home sale. That means the purchase will only go through if their house sells beforehand.
A mortgage contingency gives the buyer a set period of time to obtain the mortgage loan. If they can’t secure the mortgage in time, they can walk away from the sale.
What Contingent Means for Home Buyers
When you’re house hunting and preparing offers, it’s important to understand how a contingent status should factor into your decision-making and whether you should include contingencies in your offer.
Contingent when house hunting
Can you still put an offer on a house that’s listed as contingent? Technically, yes – although your real estate agent might advise you to focus your time and energy on other homes.
If you love a property that’s listed as contingent, it might be worth having your real estate agent contact the seller’s agent to see how the contract is structured.
- Contingent with a kick-out: This is a clause sellers include, allowing them to accept an offer while continuing to market the property. If they receive a more favorable backup offer, they can “kick out” the original buyer. Usually, this gives the original buyer a limited time frame to either remove their contingencies or walk away from the deal.
- Contingent with no kick-out: If the kick-out clause isn’t included, the seller doesn’t have the option to entertain offers – even if a better one comes along.
You can submit an offer either way. Just know that if there’s no kick-out clause, there’s very little chance the seller will even get an opportunity to consider your offer.
Contingencies when submitting an offer
Most offers include some contingencies. For example, the home inspection contingency is fairly standard, as is an appraisal contingency.
In a competitive market, one way to make your offer stronger is by removing contingencies. However, be sure to consult with your real estate agent and lender before doing so. Most contingencies exist to protect the buyer, so while you may be able to make your offer more appealing, you’re also taking on more risk.
Is it better to be contingent or pending?
Pending means the contingencies were met, and the sale is proceeding toward closing. So a pending listing is further along in the process.
If you want to submit an offer on a house with one of these statuses, your odds are better with a contingent listing because it’s earlier in the sale process.
Can a seller accept another offer while contingent?
Yes, but the structure of the first accepted offer matters. If there’s a kick-out clause, the seller has more freedom to pivot toward the new offer. If there’s no kick-out clause, they might have to accept it as a backup offer, in which case the first offer would have to fall through because contingencies weren’t met.
Why do houses stay contingent for so long?
It depends on the specific contingencies. For example, with a home sale contingency, an offer is dependent on the buyer selling their current home. If this takes a long time, it can delay the purchase of the new home.
How often do contingent offers fall through?
The exact numbers fluctuate year to year, but statistically, a majority of these deals go through. If you’re considering making an offer on a home that’s already listed as contingent, the odds say you’re better off finding a different home.
Final Thoughts on Contingent Real Estate
If you’re house hunting and find a home listed as contingent, you can still make an offer. Just know that the odds aren’t in your favor. If you’re considering which contingencies to include in your offer, be sure to consult your real estate agent and lender to get the full picture.
- In real estate, contingent is a status that means potential sale. The property will sell once certain conditions are met. But if those conditions aren’t met, the property won’t sell
- Contingencies are specific clauses buyers include in the offer contract language. Common ones include inspection, appraisal and mortgage contingencies
- In a competitive market, one way to make your offer stronger is by removing contingencies