Can I Make an Offer on a Contingent House?
Explore how to approach buying a home that's already under contract. Learn to make a compelling backup offer and what comes next.
A contingent home status in real estate indicates that a seller has accepted an offer, but the sale is not yet final. Specific conditions, known as contingencies, must be met before the transaction can fully close.
Understanding Contingent Home Status
A contingent listing signifies that an initial offer has been accepted, but the agreement is subject to certain prerequisites being fulfilled within a specified timeframe. These contingencies act as protective clauses, allowing parties to withdraw from the contract without penalty if the conditions are not met. This status differs from “pending,” where all contingencies have been cleared, and the sale is further along, nearing completion.
Common contingencies include the home inspection contingency, which grants the buyer the right to have the property professionally inspected for defects. If the inspection reveals significant issues, the buyer can request repairs, renegotiate the price, or cancel the contract. Another frequent condition is the appraisal contingency, ensuring the home’s appraised value meets or exceeds the agreed-upon sale price. If the appraisal comes in low, the buyer may renegotiate the price or withdraw from the deal.
The financing contingency, also known as a mortgage contingency, protects the buyer by making the sale dependent on their ability to secure a mortgage loan. This allows a period for the buyer to obtain loan approval. If financing falls through, the buyer can terminate the contract. Lastly, a sale of buyer’s home contingency means the buyer’s purchase of the new property is conditional on the successful sale of their current residence. This protects the buyer if their existing property does not sell by a specified date.
Submitting an Offer on a Contingent Property
It is possible to make an offer on a property that is already contingent, often referred to as a “backup offer.” A backup offer is a legally binding contract that positions a second buyer to purchase the home if the primary accepted offer falls through. Sellers may accept backup offers to provide a safety net, avoiding the need to re-list the property if the initial deal collapses.
Crafting a strong backup offer involves strategic considerations to make it appealing to the seller. Offering a competitive price can significantly increase its attractiveness, potentially using an escalation clause. An escalation clause states that the buyer is willing to increase their offer by a set increment above competing bids, up to a predetermined maximum.
Minimizing contingencies in your own offer can also make it more favorable to a seller. For instance, if financially comfortable, waiving certain inspections or having pre-approved financing can signal a smoother, faster closing process. Including a pre-approval letter from a lender with your offer shows that you are a serious buyer with the financial capacity to complete the purchase. Presenting such an offer is typically done through a real estate agent, who can help structure the terms and communicate effectively with the seller’s agent.
After Your Offer on a Contingent Home
Once a backup offer is submitted, the seller has several options. They may accept it, which means it becomes active only if the existing primary offer fails to meet its contingencies or is otherwise terminated. The seller might also choose to negotiate terms with the backup buyer or reject the offer entirely. If the primary deal progresses, your backup offer remains in its secondary position, and your earnest money deposit, if provided, would typically be returned.
The backup offer only transitions into the primary position if the initial contract is terminated. This can occur if the primary buyer’s financing falls through, a home inspection uncovers insurmountable issues, or an appraisal comes in too low. While waiting, it is advisable for the backup buyer to continue their property search, as the primary deal is not guaranteed to fall through.
Maintaining open communication with your real estate agent is important during this waiting period. Your agent can stay informed about the status of the primary offer and advise you on any developments. If the primary offer does terminate, the backup offer can quickly move forward, allowing you to secure the property without it returning to the open market.