What Does Contingent Mean on a House Sale?

When buying or selling a home, terms like “contingent” frequently appear, often causing confusion. This term indicates a specific status of a home sale, signifying that an accepted offer is in place but is dependent on certain conditions being fulfilled before the transaction can be finalized.

Understanding Contingent Status in a House Sale

A “contingent” status means a seller has accepted an offer, but the sale is not final until specific conditions, known as contingencies, are met. These conditions are outlined in the purchase agreement and serve as safeguards for both parties. If these conditions are not satisfied within a specified timeframe, the contract may be terminated without penalty, and the house could return to the market.

This status differs from “active,” meaning a home is still on the market with no accepted offer. It also stands apart from “pending,” which signifies all contingencies have been met or waived, and the sale is moving towards closing. While a contingent listing might still allow a seller to entertain backup offers or show the home, a pending status means the property is no longer actively marketed. For potential buyers, a contingent listing suggests there is still a possibility the deal could fall through, offering a slim chance to make an offer, especially if the initial conditions are not met.

Common Types of Contingencies

Real estate contracts include various contingencies designed to protect buyers and sellers. One widely used protection is the inspection contingency, which allows the buyer to conduct professional home inspections within a specified timeframe. If the inspection reveals significant issues, the buyer can negotiate repairs, request a price reduction, or withdraw from the contract without losing their earnest money deposit. Approximately 75% of buyers include an inspection contingency in their contract, making it a common safeguard.

Another frequent clause is the appraisal contingency, which protects the buyer if the home’s appraised value is less than the agreed-upon purchase price. Lenders require an appraisal to ensure the property’s value supports the loan amount. If the appraisal comes in low, the buyer can renegotiate the price or terminate the contract. This prevents the buyer from overpaying and ensures the lender is not financing more than the home is worth.

The financing or mortgage contingency is a standard provision, giving the buyer a set period to secure the necessary loan approval. This clause allows the buyer to back out of the deal without penalty and reclaim their earnest money if they cannot obtain financing by the deadline. Typically, this period ranges from 30 to 60 days, reflecting the time needed for loan processing.

A sale of existing home contingency is another type, where the buyer’s purchase of the new home is dependent on the successful sale of their current residence. This protects buyers from carrying two mortgages simultaneously if their current home does not sell within the agreed-upon timeframe, which can range from 30 to 90 days. While offering protection, this contingency can make an offer less appealing to sellers due to the added uncertainty.

The Contingency Removal Process

Once contingencies are part of an accepted offer, the buyer must actively work to satisfy or waive them within the stipulated timeframes. Buyers formally notify sellers that a contingency has been met by submitting a contingency removal form, confirming the conditions are satisfied or that the buyer is proceeding without them. Meeting these deadlines is important, as failing to do so can have consequences for the transaction.

Contingency periods vary, with mortgage contingencies often having longer durations (up to 60 days) and inspection contingencies shorter (7 to 10 days). If a buyer does not remove a contingency by the deadline, the seller may issue a “Notice to Perform,” which gives the buyer a short window, often 48 hours, to either remove the contingency or cancel the contract.

If a contingency is not met, several outcomes are possible. The buyer may renegotiate terms with the seller, such as requesting repairs or a price reduction based on inspection findings or a low appraisal. Alternatively, an extension of the contingency period might be granted if both parties agree. If a resolution is not reached and the contingency remains unmet, the buyer has the right to terminate the contract and receive their earnest money deposit back, provided they act within the terms of the contingency. Once contingencies are removed, the buyer’s earnest money deposit may become non-refundable if they subsequently back out of the purchase.