What Does It Mean When a House Is Contingent?

A “contingent” status on a home listing signifies that a seller has accepted an offer, but the sale is not yet finalized. Contingencies act as protective measures embedded within the purchase agreement, designed to safeguard the interests of both the buyer and, at times, the seller. They provide a framework for addressing potential issues that could arise during the home buying process, ensuring that parties can withdraw from the agreement without penalty if certain agreed-upon conditions are not satisfied.

Defining Contingencies in Real Estate

A contingency in a real estate contract represents a condition or action that must be fulfilled within a specified timeframe for the agreement to become legally binding or for the transaction to progress. This includes safeguarding the buyer’s earnest money deposit, a sum typically held in escrow to demonstrate serious intent to purchase. If a contingency is not met, the buyer has the right to reclaim this deposit. The period during which these conditions must be met is known as the “contingency period,” and its duration is agreed upon by both parties in the contract.

Common Types of Home Contingencies

The inspection contingency is a common provision, allowing the buyer to hire professional inspectors to examine the property for any significant defects or issues, such as structural problems, electrical concerns, or pest infestations. Buyers typically have a period, often 7 to 10 days, to conduct these inspections and then can negotiate repairs, request credits, or withdraw from the deal if major problems are discovered.

An appraisal contingency ensures that the property’s appraised value meets or exceeds the agreed-upon purchase price. This is particularly important for buyers obtaining a mortgage, as lenders will not finance a loan for more than the home’s appraised value. If the appraisal comes in lower than the purchase price, the buyer can renegotiate the price with the seller, choose to cover the difference out of pocket, or terminate the contract while retaining their earnest money deposit.

The financing contingency, also known as a mortgage contingency, protects the buyer by making the sale dependent on their ability to secure the necessary mortgage loan. This clause typically specifies a deadline by which the buyer must obtain loan approval. If the buyer is unable to secure financing within the agreed timeframe, they can withdraw from the contract without penalty and receive their earnest money back. This contingency period can range from 20 to 60 days, reflecting the time needed for loan processing.

A sale of prior home contingency is included when a buyer needs to sell their current residence to finance the purchase of the new home. This protects the buyer from the financial burden of owning two properties or managing multiple mortgage payments simultaneously. While beneficial for the buyer, this contingency can be less appealing to sellers, who may include a “kick-out” clause allowing them to continue marketing the home and accept another offer if the buyer’s existing home is not sold within a specified period.

A title contingency ensures that the property has a clear and marketable title, free from any liens, easements, or legal disputes that could affect ownership. A title search is conducted to identify any such issues, and if problems are found, the buyer can negotiate with the seller to resolve them or, if unresolved, terminate the contract. This protects the buyer from potential future financial losses or legal complications arising from unclear ownership.

Managing the Contingency Process

Once a purchase agreement with contingencies is accepted, a defined contingency period begins, during which specific actions must be completed. This timeframe, typically ranging from 10 to 60 days depending on the contingency type and local market practices, allows the buyer to fulfill their contractual obligations. For example, during an inspection contingency, the buyer arranges for professional home inspections to assess the property’s condition. For a financing contingency, the buyer actively works with their lender to finalize loan approval.

As each condition is satisfied, the corresponding contingency is formally removed or waived. This often involves the buyer signing a specific contingency removal form, which legally signifies that the condition has been met or the buyer is proceeding without that particular protection. Once a contingency is removed in writing, the buyer loses the right to terminate the contract based on that specific condition without potentially forfeiting their earnest money deposit.

If a contingency cannot be met within the agreed-upon timeframe, several outcomes are possible. The buyer can attempt to renegotiate terms with the seller, such as requesting an extension of the contingency period. If no agreement is reached, or if the condition fundamentally cannot be satisfied (e.g., a low appraisal that the seller will not adjust for), the buyer has the right to terminate the contract and receive their earnest money back. If a buyer fails to remove a contingency by its deadline, the seller may issue a “Notice to Buyer to Perform,” demanding the buyer either remove the contingency or risk contract cancellation, often within a short window like 48 hours. If a buyer backs out of the deal without a valid reason or after the contingency period has expired, they may forfeit their earnest money.