What Does Contingent Mean on a House for Sale?

When a house is listed as “contingent,” it signifies that a seller has accepted an offer from a buyer, but the sale is not yet finalized. This status means the transaction depends on specific conditions, known as contingencies, being met before the deal can close. These conditions protect both parties, allowing them to withdraw from the contract without penalty if the terms are not fulfilled.

Understanding Contingent Status

A contingent status indicates a contractual agreement between a buyer and seller that relies on the fulfillment of specific conditions within a defined timeframe. While an offer has been accepted, the property is not yet sold, and the transaction could still fall through if these conditions are not met. This status serves as a protective measure, ensuring that buyers are not committed to a purchase if unforeseen issues arise.

The contingent designation differs from a “pending” status, where all conditions have been satisfied and the sale is moving towards closing. If conditions are not met during the contingent period, the contract may be voided, and the house can return to the market. This offers a safety net, allowing buyers to back out of the deal and typically reclaim their earnest money deposit if a contingency is not fulfilled.

Common Types of Contingencies

Real estate contracts frequently include several common contingencies designed to protect buyers and sellers.
Inspection contingency: Allows the buyer to hire a professional home inspector to assess the property’s condition. If the inspection reveals significant issues, the buyer can request repairs, negotiate a price reduction, or withdraw from the purchase without penalty. This period typically lasts 7 to 14 days after the offer is accepted.
Appraisal contingency: Protects the buyer if the home’s appraised value is less than the agreed-upon purchase price. Lenders typically only finance up to the appraised value. If the appraisal comes in low, the buyer can renegotiate the price, pay the difference in cash, or withdraw from the contract. This contingency period can range from 10 to 20 days.
Financing contingency: Also known as a loan or mortgage contingency, this makes the sale dependent on the buyer securing the necessary mortgage loan. This clause protects the buyer’s earnest money if their loan application is denied or if they cannot obtain financing within a specified period, typically 30 to 60 days. If financing falls through, the buyer can terminate the contract without losing their deposit.
Sale of buyer’s home contingency: This means the buyer’s ability to purchase the new property is conditional on the successful sale of their current home by a specified date. This protects the buyer from owning two homes simultaneously. While beneficial for buyers, sellers may be less inclined to accept this contingency, especially in a strong seller’s market, as it introduces uncertainty and potential delays.

What Happens During the Contingent Period

Once a home is listed as contingent, a series of actions unfold as both parties work to satisfy the agreed-upon conditions. The buyer typically initiates due diligence, which includes scheduling professional inspections and an appraisal of the property. The seller facilitates these activities by providing access to the home for inspectors and appraisers.

During this time, if inspections reveal issues, the buyer may submit a request for repairs or a credit from the seller. This often leads to a negotiation period, where the buyer and seller discuss potential solutions, such as price adjustments or seller-funded repairs. If an agreement cannot be reached, the buyer may have the contractual right to terminate the purchase agreement.

The buyer also works with their lender to finalize financing, providing all required documentation for loan approval. The lender will review the appraisal report to ensure the property’s value supports the loan amount. If any contingency is not met or waived by the specified deadline, the deal can fall apart, and the property may return to the market.

Making an Offer on a Contingent Home

When a home is contingent, interested buyers can often still submit an offer, which is commonly referred to as a “backup offer.” A backup offer is a legally binding contract that positions a buyer to purchase the home if the primary contingent offer falls through.

Submitting a backup offer provides an opportunity to acquire a desired property that is temporarily off the market. If the initial buyer’s deal fails due to unmet contingencies, your backup offer could automatically move into the primary position. This can be particularly advantageous in competitive markets, potentially allowing a buyer to secure a home without engaging in a new bidding war.

However, there are considerations for making a backup offer. The primary offer may successfully close, meaning the backup offer will not proceed. Backup offers can tie up a buyer’s earnest money deposit while they wait to see if the first deal collapses. Buyers should carefully weigh these factors and consult with their real estate agent to determine if a backup offer aligns with their home-buying strategy.