What Does It Mean When a House Is Under Contingent?

When a house is listed as “contingent,” it signifies that an offer has been accepted by the seller, but the sale is not yet finalized. This status indicates that specific conditions, or contingencies, must be met before the transaction can proceed to closing.

What “Contingent” Means in Real Estate

The term “contingent” in real estate means that a purchase agreement is in place, but its completion hinges on predefined conditions being satisfied. These conditions are typically included in the sales contract to protect the interests of both the buyer and the seller. If these conditions are not met within a specified timeframe, the contract may be terminated without penalty, often allowing the buyer to recover their earnest money deposit.

Financing Contingency

One of the most frequent conditions is the financing contingency, also known as a mortgage contingency. This clause makes the sale dependent on the buyer securing a loan. It provides a timeframe, usually 30 to 60 days, for the buyer to obtain mortgage approval. If the buyer is unable to secure the required financing, this contingency allows them to withdraw without losing their earnest money deposit.

Inspection Contingency

Another common condition is the inspection contingency, which grants the buyer a specified period, often 7 to 10 days, to have the home professionally inspected. This inspection helps identify any significant issues with the property, such as structural defects, plumbing problems, or electrical concerns. Based on the inspection findings, the buyer may negotiate for repairs, a price reduction, or terminate the contract if major issues are discovered.

Appraisal Contingency

The appraisal contingency is designed to protect both the buyer and the lender by ensuring the property’s value aligns with the agreed-upon sale price. A professional appraiser determines the fair market value of the home. If the appraisal comes in lower than the purchase price, the buyer can renegotiate the price, cover the difference, or withdraw from the contract. Lenders typically will not finance more than the appraised value of a home.

Home Sale Contingency

A home sale contingency is included when the buyer needs to sell their current home to finance the new purchase. This condition allows the buyer to back out of the contract if their existing property does not sell within a specified timeframe, typically ranging from 30 to 90 days. Less common but still relevant contingencies can include a clear title contingency, ensuring no liens or ownership disputes exist, and a review of homeowners association (HOA) documents.

The Contingency Period: Process and Potential Outcomes

Once an offer with contingencies is accepted, the transaction enters the contingency period, a defined timeline during which the specified conditions must be fulfilled. This period’s duration varies depending on the type of contingency and the agreement between parties, often ranging from 10 to 60 days.

The buyer actively works to satisfy their contingencies; for instance, they arrange for a home inspection, secure mortgage approval from a lender, and ensure the property appraisal is completed. Sellers cooperate by providing access for inspections and appraisals, and by adhering to any terms agreed upon in the contract. Effective communication between all parties, including real estate agents and lenders, is important to manage expectations and address any emerging issues promptly.

When contingencies are successfully met, the buyer typically waives these conditions, moving the transaction closer to closing. This signifies the buyer’s commitment to the purchase, and at this point, their earnest money deposit, initially held in escrow, becomes non-refundable in most cases if they later default.

However, if a contingency is not met within the agreed-upon timeframe, several outcomes are possible. The buyer may have the right to terminate the contract without penalty, and their earnest money deposit is typically refunded. Alternatively, the parties can negotiate new terms, such as a price adjustment if an inspection reveals unexpected repair needs, or an extension of the contingency period. If no agreement is reached, the contract can become null and void, allowing both parties to seek other opportunities.

In some cases, especially with home sale contingencies, a seller might include a “kick-out clause” in the contract. This clause allows the seller to continue marketing the property even after accepting a contingent offer. If the seller receives another acceptable offer, the original buyer is given a short window, often 24 to 72 hours, to either remove their contingency and proceed with the purchase or forfeit the contract, allowing the seller to accept the new offer. This mechanism provides sellers with flexibility while a contingent offer is in place.