What Does Contingent Mean?
Sep 4, 2019
Negotiating has always been a big part of real estate.
The seller may ask for a certain amount, but that won’t necessarily stop a buyer from offering less.
Often, this begins the negotiating process, which will almost always involve at least one contingent offer.
But, what does contingent mean?
What Is a Contingent Offer?
In real estate, if a property is marked as “contingent”, it means that an offer has been made and the owner accepted it.
However, it’s contingent – instead of “sold” – because one or both parties have requested certain provisions which the other party has yet to approve.
For example, say you’ve discovered a house you really like. It’s in your price range, too. You’d love to buy it right away, but you first want to make sure there aren’t any issues with the house that you’re not seeing.
So, you make an offer and the buyer accepts, but you let them know that the deal is contingent on the home inspection going well.
Maybe it turns up a problem, though. One of the bathrooms needs some plumbing work done. That could represent a contingency, as well. You’d tell the owner that you’re willing to pay the agreed-upon price, provided they pay to get the plumbing in that bathroom fixed.
What Does It Mean When a Property Is Pending?
“Pending” is another common label you’ll often see on real estate listings. It simply means that the buyer and seller are now moving forward with the sale as the contingencies have been resolved.
Whereas a property labeled “contingency” is still technically active, that’s not the case with one that is pending. The offer was accepted, and the contingencies were resolved. Both parties are just waiting on legal work to clear.
6 Common Types of Contingencies
You can request just about anything as a contingency, though that doesn’t mean the other party is going to accept it.
Therefore, it helps to know which ones are the most common types of contingencies. The following six are the ones that are asked for the most.
1. Inspection Contingency
We already touched on an inspection contingency, but it’s worth noting that it has become so commonplace that the vast majority of sellers simply expect it. Who wouldn’t want to have an expert inspect a home before they take out a mortgage to purchase it?
Many sellers will hire their own inspectors before even putting their home on the market, just to make sure they’re not going to run into any problems.
Nonetheless, even then, they generally understand that buyers want to have their own inspection done just in case.
2. Appraisal Contingency
Most lenders will insist an appraisal is done before they’ll provide funds to a buyer. After all, they want to be certain they’re not lending any more money than is absolutely required for the house.
Of course, buyers should be just as insistent. No one wants to spend more than they need to on anything, much less an investment as big as a home.
With an appraisal contingency, the buyer is stating that they won’t pay more than the amount the appraiser values the home at. So, the seller either has to match it or let them opt out of the deal altogether.
3. Financial Contingency
One of the reasons it’s a really good idea to get preapproved for a mortgage is because you don’t want to go to the trouble of finding your perfect home and getting an offer accepted only to learn you can’t get the loan you need to follow through.
Nonetheless, plenty of buyers still wait to find the home of their dreams before applying for a mortgage.
This is a good example of how it could be the seller who has contingencies. In this case, the seller could insist that they don’t have to move forward with the sale if the buyer can’t come up with the money.
4. Title Contingency
Before you can close on a home, the title company must carry out a thorough title search to check for any possible issues that might challenge the validity of the sale. Otherwise, you could buy a house only to later learn that the former owner’s ex-wife still has a claim on it.
A title contingency allows the buyer to back out of the sale if the title search comes back with any problems.
5. Active - First Right
The “right of first refusal” – or just “first right” – contingency gives a buyer the right to match any offer before the seller goes through with the sale.
For example, if you really like your neighbor’s house and you know they’re thinking about selling, you could offer to buy it for $250,000 with the right of first refusal.
If the house goes on the market and someone offers $255,000, the contingency requires the seller to give you the chance to match that price before they sell to the other buyer.
6. Active - Kick Out
Say you’ve just accepted an offer on your home, but the buyer still has to sell their own. Until they do, they can’t actually get the mortgage they need to pay you.
With a kick-out contingency in place, you’re essentially telling the buyer that you reserve the right to cancel the sale if another buyer comes forward with the funds needed to complete the sale.
Should You Accept Contingent Offers?
There’s no one right answer here, but it’s always best to consult an actual real estate agent. Making the wrong decision could be extremely costly.
That said, generally speaking, you should consider the market. If it’s working in your favor, you can probably reject contingencies because you’re confident more offers are coming.
On the other hand, if your home isn’t attracting a lot of interest, you may want to accommodate any interested buyers.
Get Expert Guidance with Real-Estate Contingencies
Again, you want the help of an experienced real estate agent who has dealt with contingency offers numerous times. They’ll be able to assess your unique situation and give you the best possible advice about how to proceed.
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