Can You Still Bid on a Contingent House?

Understanding property listings is important for home buyers. One common status is “contingent,” which indicates a property has an accepted offer but is not yet a closed deal. This status influences how transactions proceed, and navigating these situations requires an understanding of the conditions that can affect a home sale.

Understanding Contingent Status

When a house is listed as contingent, it signifies that a seller has accepted an offer from a prospective buyer, but the finalization of the sale depends on certain conditions being met. These conditions, known as contingencies, are outlined in the purchase agreement and must be satisfied within a specified timeframe. If these conditions are not fulfilled, the contract may become void, potentially returning the house to the market. Contingencies serve to protect either the buyer, the seller, or both parties involved.

One common type is the financing contingency, which makes the sale dependent on the buyer securing a mortgage loan. This clause provides a set timeframe for the buyer to obtain loan approval. If the buyer cannot secure the necessary financing within this period, they can withdraw from the deal without penalty, and their earnest money deposit is returned.

Another common condition is the appraisal contingency. This ensures that the home’s appraised value meets or exceeds the agreed-upon purchase price. Lenders require an appraisal to confirm the property’s value, and if it appraises for less than the offer, the buyer can renegotiate the price, cover the difference, or withdraw from the contract while retaining their earnest money.

The inspection contingency allows the buyer to have the home professionally inspected for potential issues. Buyers have a set period after offer acceptance to conduct this inspection. If significant problems are discovered, the buyer can request repairs, negotiate a price reduction, or cancel the contract without losing their earnest money. A home sale contingency means the buyer’s purchase is conditional upon the successful sale of their current home by a specified deadline. This protects the buyer from owning two properties simultaneously but can make their offer less appealing to a seller.

Submitting a Backup Offer

It is often possible to submit an offer on a house already listed as contingent. This is known as a “backup offer.” A backup offer functions as a secondary contract that can automatically become the primary purchase agreement if the initial deal falls through. This provides an opportunity for buyers who desire a property under contract.

For sellers, accepting backup offers provides a safety net and helps avoid the need to re-list and remarket the property if the first contract fails. It can also encourage the primary buyer to proceed diligently, knowing there is another interested party. Backup offers are legally binding contracts, similar to primary offers, and typically involve an earnest money deposit from the backup buyer.

The effectiveness of a backup offer often depends on the inclusion of a “kick-out clause,” also known as an “escape clause” or “right of first refusal,” in the primary contract. This clause allows the seller to continue marketing the property and accept other offers, even while under a contingent agreement. If a more favorable offer is received, the kick-out clause typically grants the initial buyer a short timeframe to either remove their contingencies and proceed with the sale or relinquish their position.

Factors that can make a backup offer more attractive to a seller include a higher purchase price, fewer contingencies, or an all-cash proposal. A cash offer, for instance, eliminates financing and appraisal contingencies, reducing the risk and time associated with the transaction. A buyer willing to waive certain contingencies, such as an inspection contingency, may also present a more appealing option, although this carries increased risk for the buyer.

Navigating the Backup Offer Process

Once a buyer submits a backup offer and it is accepted by the seller, it enters a waiting period. During this time, the primary contract is still active, and the initial buyer is working to satisfy their contingencies. The backup offer remains in a secondary position, ready to advance if the first deal encounters issues.

The transition from backup to primary contract occurs if the initial buyer fails to meet their contractual obligations or if the seller exercises a kick-out clause. For example, if the primary buyer cannot secure financing within the agreed timeframe, or if an inspection reveals significant issues they cannot resolve with the seller, the initial contract may terminate. In such instances, the accepted backup offer automatically moves into the primary position.

When the backup offer becomes primary, the new buyer faces fresh timelines for their own contingencies, such as inspections, appraisals, and securing financing. These timelines, usually outlined in the backup offer agreement, must be adhered to diligently. The buyer will have specific periods for a home inspection and financing approval, similar to a standard purchase agreement.

Throughout this transition, communication between the buyer, seller, and their respective real estate agents is important. Agents facilitate the exchange of information regarding the status of the primary contract and guide the backup buyer through the requirements once their offer moves into the primary position. This ensures all parties are aware of the contract’s progression and any impending deadlines.