What Happens When a House Is Contingent?

A “contingent” status in real estate signifies an accepted offer on a property, but with specific conditions that must be satisfied before the transaction can be finalized. It serves as a protective measure, allowing buyers to conduct due diligence and sellers to ensure certain requirements are met. The property remains in an uncertain state until these terms are fulfilled.

Understanding “Contingent” in Real Estate

A contingent status in real estate indicates that a seller has accepted a buyer’s offer, but the sale’s progression depends on certain conditions being met. This stage differs from an “active” listing, where a property is still on the market without an accepted offer, and a “pending” status, which means all conditions are satisfied and the sale is moving towards closing. While a contingent home is effectively under contract, it is not yet a definitive sale.

During this contingent phase, the property is generally not actively marketed to new potential buyers. However, depending on the specific agreement, the seller might retain the right to accept backup offers. This provides a fallback option if the initial contingent offer does not proceed to closing. The contingent status provides a period for both parties to address necessary steps before the transaction becomes firm.

Common Types of Contingencies

Real estate contracts include various contingencies designed to protect both buyers and sellers. A financing or loan contingency, for example, allows the buyer to withdraw from the contract and reclaim their earnest money if they are unable to secure a mortgage within a specified timeframe. An inspection contingency grants the buyer the right to have the home professionally inspected for defects or issues. If the inspection reveals significant problems, the buyer can negotiate repairs, a price reduction, or even terminate the agreement without penalty.

An appraisal contingency is another contingency, stipulating that the home must appraise for at least the agreed-upon purchase price. If the appraisal comes in lower, the buyer may renegotiate the price, pay the difference out-of-pocket, or terminate the contract. A home sale contingency protects a buyer who needs to sell their current property before they can purchase the new one. This clause allows them to cancel the purchase if their existing home does not sell by a certain date. Finally, a title contingency ensures the seller holds clear legal ownership of the property, free from undisclosed liens or claims, allowing the buyer to back out if title issues are discovered.

The Contingency Period Process

The contingent phase of a real estate transaction is governed by specific timelines and deadlines outlined in the purchase agreement, dictating when each contingency must be satisfied. Buyers engage in due diligence during this period, which involves scheduling professional home inspections, applying for and securing mortgage financing, and reviewing all disclosures provided by the seller.

Sellers also have responsibilities, including providing timely access for inspections and appraisals. They must deliver all required disclosures, detailing known property issues or past repairs. If issues arise from inspections or appraisals, such as a need for repairs or a low appraisal, further negotiations may occur. These discussions might involve the seller agreeing to make repairs, offering credits, or adjusting the purchase price. Removing or waiving contingencies requires written documentation from the buyer.

Outcomes of Contingency Removal

Once the contingency period concludes, the transaction can proceed in one of two main ways. If all contingencies are successfully met and formally removed, the contract moves from a “contingent” to a “pending” status. This signifies that major hurdles have been cleared, and the sale is progressing toward the final closing. Both buyer and seller then prepare for closing, including final loan approval for the buyer and meeting all legal and financial requirements for ownership transfer.

Conversely, if a contingency is not met or waived within the specified timeframe, the contract may be terminated. For instance, if a buyer cannot secure financing or a home inspection reveals insurmountable issues, the agreement can be dissolved. The disposition of the earnest money deposit is then determined. If the contract is terminated due to an unmet contingency, the earnest money is returned to the buyer. However, if a buyer terminates for reasons outside an agreed-upon contingency or misses a deadline, they may risk forfeiting the earnest money to the seller.