What Does Contingent Mean in Real Estate?

In real estate, “contingent” means an offer on a property has been accepted, but the sale is not yet final. The transaction depends on specific conditions, or contingencies, being met before the contract becomes fully binding and the sale closes. These conditions are clauses in the purchase agreement that protect one or both parties. If these circumstances are not fulfilled, the contract may be terminated.

Types of Real Estate Contingencies

Real estate contracts often include various contingencies designed to protect buyers. One common type is the inspection contingency, which grants the buyer a specified period, typically 7 to 10 days, to have the property professionally inspected. If the inspection reveals significant issues, the buyer can negotiate repairs, a price reduction, or even withdraw from the contract without penalty. This ensures buyers are not obligated to purchase a property with unforeseen defects.

Another frequent contingency is the financing, or mortgage, contingency. This clause makes the sale dependent on the buyer securing a loan within a set timeframe, commonly 30 to 60 days. If the buyer cannot obtain the necessary financing, they can terminate the agreement and receive a refund of their earnest money deposit. This protects the buyer from being committed to a purchase they cannot finance.

The appraisal contingency is also widely used, stipulating that the property must appraise for at least the purchase price. Lenders generally will not finance a home for more than its appraised value. If the appraisal comes in low, this contingency allows the buyer to renegotiate the price or exit the deal without losing their earnest money. This clause safeguards the buyer from overpaying and the lender from over-lending.

A less common, but still significant, condition is the sale of buyer’s home contingency. This makes the purchase of a new home contingent upon the buyer successfully selling their current residence. This usually occurs within a specified period, which can range from 30 to 90 days. This protects the buyer from the financial burden of owning two homes simultaneously if their existing property does not sell.

Contingency Status in a Transaction

When a property is listed as “contingent,” it means an offer has been accepted, and the home is under contract. While contingent, the property may still appear on real estate listings, often marked with this status.

The contingent status affects the visibility of the property to other potential buyers. Some contingent listings are “continue to show,” meaning the seller may still allow showings and accept backup offers in case the primary deal falls through. Other contingent listings might be “no show,” indicating the seller has agreed to stop showing the home while the existing contingencies are addressed. The duration a home remains in contingent status typically ranges from 10 to 30 days, but can extend to 60 days or more depending on the complexities of the conditions.

If contingencies are met within the agreed timeframe, the sale moves closer to closing, eventually transitioning to a “pending” status. If conditions are not satisfied, the property could return to an active status on the market. This period allows both buyer and seller to ensure all prerequisites are met.

Satisfying and Removing Contingencies

Once a contingency condition is met, such as a satisfactory inspection report or loan approval, the buyer typically provides written notice to the seller to formally remove that contingency. This process often involves signing a “contingency removal form,” which documents that the specific condition has been fulfilled or waived. Meeting these conditions allows the transaction to progress toward closing.

Buyers also have the option to “waive” a contingency, meaning they choose to proceed with the purchase even if the condition has not been fully met. For example, a buyer might waive an inspection contingency to make their offer more attractive in a competitive market. However, waiving contingencies carries risks, as it eliminates the buyer’s ability to back out without penalty if issues arise related to that waived condition. Waiving a financing contingency could mean forfeiting the earnest money deposit if the loan falls through.

The timeline for removing contingencies is specified in the purchase agreement. Both buyers and sellers must adhere to these deadlines and understand the implications of removing or waiving these contractual safeguards.