Can You Put an Offer on a Contingent House?
Explore your options for buying a home when it's already under agreement. Understand the process for submitting your interest effectively.
The real estate market is dynamic. A common scenario involves a home listed as “contingent,” which prompts questions about expressing further interest. Understanding this stage is important for navigating potential opportunities.
Understanding Contingent Home Status
A home listed as contingent signifies a seller has accepted an offer, but the sale depends on conditions being met. These conditions, known as contingencies, are protective clauses in the purchase agreement. If these conditions are not satisfied within an agreed-upon timeframe, the contract can be terminated, potentially allowing the home to return to the market.
One common type is the financing contingency, making the sale dependent on the buyer securing a mortgage loan. This clause grants the buyer a period, often 30 to 60 days, to obtain loan approval. If the buyer cannot secure financing within this timeframe, they can withdraw from the deal without financial penalty, often retaining their earnest money deposit.
Another frequent condition is the appraisal contingency, protecting the buyer if the home’s appraised value falls below the agreed-upon purchase price. Lenders require an appraisal to ensure the property’s value aligns with the loan amount. If the appraisal comes in low, the buyer may renegotiate the price, pay the difference out-of-pocket, or, if specified in the contract, withdraw from the sale.
The inspection contingency allows the buyer to have the home professionally inspected. Buyers often have 7 to 10 days after offer acceptance to conduct an inspection and voice concerns. This enables renegotiation of terms, requests for repairs, or contract cancellation if significant problems are discovered. A sale of buyer’s current home contingency means the purchase depends on the buyer selling their existing property. This protects the buyer from owning two homes simultaneously, though sellers may be hesitant to accept such offers in competitive markets.
Making an Offer on a Contingent Home
Even when a home is listed as contingent, other buyers can submit an offer. The initial accepted offer is not yet finalized and might not proceed to closing. Many real estate professionals consider a house available until the closing date, regardless of its contingent status.
Prospective buyers can structure their interest as a “backup offer,” signaling intent to purchase if the primary contract fails. The process for making a backup offer is similar to submitting any standard offer. It involves working with a real estate agent to prepare all necessary offer documents.
The offer should clearly state its nature as a backup, outlining conditions for it to become the primary agreement. This means the offer activates if the initial accepted offer falls through due to unfulfilled contingencies. Engaging a buyer’s agent is beneficial, as they can guide the buyer through specific wording and legal considerations to ensure the backup offer is properly positioned.
How Backup Offers Function
A backup offer, once accepted, functions as a legally binding contract effective if the primary purchase agreement terminates. This provides a safety net for the seller, ensuring another buyer is in line without re-listing the property. For the backup buyer, it means potentially securing a desired home if the initial deal encounters an issue.
Formal acceptance of a backup offer involves buyer and seller signing a specific backup addendum to the purchase agreement. This addendum stipulates the backup offer transitions to primary status if the initial contract fails. The backup buyer provides an earnest money deposit, held in escrow, similar to a primary offer. If the first contract successfully closes, the earnest money from the backup offer is returned.
The shift from backup to primary status is automatic or occurs through negotiation once the initial contract is voided. Sellers and their agents communicate with the backup offeror when the primary deal is at risk or terminated. This communication ensures a seamless transition, allowing the backup buyer to proceed with due diligence and move towards closing.
What Determines a Backup Offer’s Progression
A backup offer progresses to primary status when the initial accepted offer fails to satisfy its contractual contingencies. This means one or more conditions in the first purchase agreement were not met within the specified timeframe. The primary offer then becomes void, opening the opportunity for the backup offer to take its place.
One common reason for a primary offer to fall through is the failure of financing. This occurs if the buyer’s loan application is denied, perhaps due to changes in their financial situation, a new large debt, or an inability to meet lender requirements. Even with pre-approval, final loan approval is not guaranteed until underwriting is complete.
Another significant factor is an unsatisfactory home inspection. If the inspection reveals major structural problems, safety hazards, or extensive repair needs that the buyer and seller cannot resolve through negotiation, the buyer may elect to terminate the contract. Similarly, a low appraisal can derail a deal if the home appraises for less than the agreed-upon price and neither party is willing to adjust the terms or bridge the gap.
The sale of a buyer’s current home contingency can also lead to contract termination. If the buyer’s existing property does not sell within the agreed-upon period, the initial contract may be canceled. Finally, a buyer might experience “cold feet” or a change of mind, deciding to withdraw from the purchase for personal reasons. While less tied to specific contingencies, such instances can also lead to the primary offer falling through, allowing a backup offer to potentially move forward.