What Does Contingent Mean in a Real Estate Sale?

When navigating the real estate market, buyers and sellers often encounter the term “contingent.” A contingent status means an offer has been accepted, but the sale is not yet final because specific conditions must be met for the purchase agreement to become fully binding. These requirements must be satisfied by either the buyer, the seller, or both parties.

Understanding Real Estate Contingencies

Contingencies are conditions written into the real estate contract. This status is often reflected in real estate listings, appearing as “contingent,” “pending,” or “under contract – contingent.” During this period, the property is typically not actively marketed to new buyers, though backup offers might still be considered.

The presence of contingencies means the transaction is not yet “closed” or “sold.” Both the buyer and seller must agree to the terms of each contingency and sign the contract before it becomes legally binding. Contingencies offer a protective measure, allowing either party to withdraw from the contract without penalty if the specified conditions are not met.

Common Contingency Types

Several common types of contingencies are frequently included in real estate contracts to protect the interests of the buyer and, at times, the seller. One prevalent type is the financing contingency, sometimes called a mortgage contingency. This clause allows the buyer to withdraw from the deal without penalty if they are unable to secure a mortgage loan for the agreed-upon amount within a specified timeframe, typically 30 to 60 days. It protects the buyer’s earnest money deposit if their loan application is denied due to factors like changes in credit or employment.

Another common type is the appraisal contingency. This condition stipulates that the property must appraise for at least the sale price. If the appraisal comes in lower than the purchase price, the buyer can renegotiate the price with the seller, cover the difference in cash, or cancel the contract and receive their earnest money back. This protects the buyer from overpaying and ensures lenders do not finance more than the property’s value.

The inspection contingency is also common. This clause grants the buyer a specific window, typically 7 to 10 days, to conduct professional home inspections. If the inspection reveals significant issues or defects, the buyer can negotiate repairs with the seller, request a price reduction, or terminate the contract without losing their earnest money deposit. This ensures the buyer is not obligated to purchase a property with unforeseen major problems.

A home sale contingency protects a buyer who needs to sell their current home before purchasing a new one. This clause allows the buyer to back out of the contract without penalty if their existing home does not sell within a specified period, typically 30 to 60 days. While beneficial for the buyer by preventing them from owning two homes simultaneously, sellers may find offers with this contingency less appealing due to the added uncertainty and potential delays. Other contingencies include title contingencies, which ensure a clear title free of liens or ownership claims, and homeowners insurance contingencies, which verify the buyer can obtain necessary coverage.

The Contingency Removal Process

Each contingency typically has a defined timeframe or deadline within the purchase agreement. During this period, the buyer works to satisfy the conditions. For instance, the buyer applies for a loan for a financing contingency, arranges for an appraisal, or schedules a professional home inspection. Fulfilling these steps allows the buyer to assess the property and their financial readiness.

Once the conditions of a contingency are met or waived, they must be formally removed from the contract. This often involves the buyer signing a contingency removal form or sending a written notice to the seller. In some jurisdictions, contingencies may automatically expire if no action is taken, while others require active, written removal.

If a contingency cannot be met, such as an unfavorable inspection report or a loan denial, the buyer generally has the right to terminate the contract and recover their earnest money deposit, provided they act within the stipulated timeframe. If the buyer fails to meet a contingency deadline without terminating, the seller may issue a “Notice to Perform,” requiring the buyer to remove the contingency or risk contract cancellation. Once all contingencies are successfully removed, the contract becomes “firm” or “unconditional,” increasing the likelihood of the sale proceeding to closing.