What Does It Mean for a Home to Be Contingent?

When a home is listed as “contingent,” an offer has been accepted, but the sale is not yet final. Certain conditions, known as contingencies, must be fulfilled before closing. Outlined in the purchase agreement, these conditions safeguard both parties, allowing withdrawal without penalty if terms are not met.

Understanding the “Contingent” Status

A contingent listing means a seller has accepted an offer, but the sale is conditional. This protects the buyer by ensuring requirements are met before full commitment. For instance, an offer might depend on securing a mortgage or confirming the home’s condition through an inspection.

Though under contract, it’s not a closed deal; the sale could still fall through if conditions aren’t met. For other buyers, it’s usually off the market but could become available if the deal collapses. Contingencies provide an escape clause, allowing buyers to back out without losing earnest money if a condition fails.

Common Types of Contingencies

Real estate transactions often include contingencies to protect buyers. One common type is the home inspection contingency, granting the buyer the right to have the property professionally inspected. This typically occurs within 7 to 14 days, allowing the buyer to identify significant problems. If major defects are discovered, the buyer can negotiate for repairs, request a price reduction, or withdraw from the contract and retain their earnest money.

Another safeguard is the appraisal contingency, which protects the buyer if the home’s appraised value is less than the agreed-upon purchase price. Lenders typically base the loan amount on the appraised value, so if it comes in low, this contingency allows the buyer to renegotiate the price with the seller or cancel the deal without losing their earnest money. Often, if the appraisal is lower, the buyer might ask the seller to reduce the price to the appraised value.

The financing or mortgage contingency is also prevalent, giving the buyer a specified period, typically 30 to 60 days, to secure the necessary loan. If the buyer is unable to obtain financing within this timeframe, they can withdraw from the purchase agreement without penalty and receive their earnest money back. This protects buyers from being obligated to purchase an unaffordable home.

Finally, a home sale contingency applies when a buyer’s ability to purchase a new home depends on the sale of their current property. This clause provides a specific amount of time, often ranging from 30 to 90 days, for the buyer to sell their existing home. If the current home does not sell within the agreed-upon period, the buyer is typically not obligated to proceed with the purchase of the new property, protecting them from carrying two mortgages.

Navigating the Contingency Period

Once an offer is accepted and a home enters contingent status, a defined period begins for the buyer to satisfy conditions. This contingency period typically spans 10 to 60 days, varying by contingency type and contract terms. During this phase, the buyer undertakes crucial steps such as arranging for professional home inspections and coordinating with their lender for appraisal and financing approval.

Both the buyer and seller have roles during this time. The buyer is responsible for initiating and completing due diligence, like scheduling inspections and providing required financial documentation to their lender. The seller, in turn, must cooperate by providing access to the property for inspections and appraisals, as well as supplying any required disclosures. As each condition is met, the buyer typically “removes” or “waives” the contingency in writing, signaling intent to proceed. This formal removal indicates that the buyer is satisfied with that particular aspect of the agreement.

When Contingencies Are Not Satisfied

If contingencies are not met or waived within the specified timeframe, the contract addresses potential outcomes. If a buyer cannot satisfy a condition, such as securing financing or if an inspection reveals significant unremedied issues, they generally have the right to terminate the agreement. In most cases, if terminated due to an unmet contingency, the buyer’s earnest money is returned.

However, if a buyer chooses to back out of the deal after all contingencies have been removed or waived, they may risk forfeiting their earnest money deposit. When a sale falls through due to unmet contingencies, the home typically reverts to an active listing. This allows the seller to entertain new offers and find another buyer for the property.