What Does It Mean When a Property Is Contingent?

When a property is listed as “contingent,” it signifies a crucial stage in a real estate transaction where an offer has been accepted, but the sale is not yet finalized. This status indicates that the successful completion of the purchase depends on certain conditions being met by a predetermined deadline. These conditions, known as contingencies, are typically outlined within the purchase agreement between the buyer and the seller. While an agreement is in place, the presence of contingencies means the deal could still encounter obstacles before reaching the closing stage.

Understanding “Contingent”

The term “contingent” in real estate means that a property is under contract, but its sale is conditional upon specific requirements being satisfied. An accepted offer exists, creating a preliminary agreement between the buyer and seller. However, the property is not yet considered “sold” because the transaction’s progression hinges on these stipulated conditions. This status provides a framework where either party, typically the buyer, can withdraw from the contract without penalty if the agreed-upon conditions are not fulfilled.

A contingent status highlights that the deal is in a transitional phase, protecting both parties from unforeseen issues. For instance, a buyer might include a clause allowing them to back out if a home inspection reveals significant problems. If these conditions are not met, the buyer usually retains their earnest money deposit. This safeguards the buyer’s financial interest should the deal fall through due to an unmet contingency.

Common Contingencies in Real Estate

The financing contingency, also known as a mortgage contingency, allows the buyer a specified period, typically 30 to 60 days, to secure a mortgage loan for the property. If the buyer is unable to obtain the necessary financing within this period, they can withdraw from the deal without incurring penalties, and often, their earnest money deposit is returned.

Another common safeguard is the inspection contingency, which grants the buyer the right to have the property professionally inspected. This typically occurs within 7 to 10 days of the offer acceptance. If the inspection uncovers major defects, the buyer can negotiate for repairs, request a price reduction, or choose to terminate the contract. This protects the buyer from hidden problems that could lead to substantial future expenses.

The appraisal contingency is used, especially when a buyer is obtaining a mortgage. This condition ensures that the property’s appraised value meets or exceeds the purchase price. If the appraisal comes in lower than the sales price, the buyer can renegotiate the price with the seller, make up the difference in cash, or exit the contract without penalty. Lenders often require an appraisal to justify the loan amount.

The sale of prior home contingency protects buyers who need to sell their home to finance a new purchase. It allows the buyer to terminate the contract if their existing home does not sell within a specified period, often 30 to 60 days. While beneficial for the buyer, this contingency can make an offer less attractive to sellers, especially in a competitive market.

Implications of a Contingent Property Status

For sellers, this status often means they have a buyer, but the deal remains susceptible to falling through if the agreed-upon conditions are not met. Some sellers may continue to market the home and accept backup offers during this period, especially if the contingencies are significant, such as a home sale contingency. A backup offer could become the primary contract if the initial contingent deal fails.

For buyers, a contingent status indicates that their offer has been accepted, but they must now diligently work to satisfy the conditions within the specified timeframe. This involves scheduling a home inspection, securing loan approval, and ensuring the property appraises for the correct value. Contingency periods often range from 7 to 17 days for inspections and 30 to 60 days for financing. Buyers are generally protected and can reclaim their earnest money if a contingency is not met.

Contingencies are typically removed in writing once their conditions are satisfied or waived. For instance, after a successful home inspection and any agreed-upon repairs, the inspection contingency is removed. If a contingency is not met by the deadline, the seller may grant an extension, issue a formal “Notice to Perform,” or cancel the contract. Should the deal fall through, the property will typically return to an active status on the market.