What Is a Contingent House Sale?

A contingent house sale is a real estate transaction where the finalization of the purchase agreement depends on specific conditions being met. These conditions, known as contingencies, are stipulations written into the contract that must be satisfied for the sale to proceed as planned. Their primary purpose is to safeguard the important interests of either the buyer, the seller, or both parties involved in the transaction. If any of these agreed-upon conditions are not fulfilled within the specified timeframe, the contract can typically be voided without penalty, allowing the parties to walk away from the deal.

Common Contingency Types

Several common contingencies are included in real estate contracts to provide protection during the homebuying process.
Financing contingency: Makes the sale dependent on the buyer securing a mortgage loan. This clause typically specifies a timeframe, often 20 to 30 days, for loan approval.
Appraisal contingency: Stipulates the property must appraise for at least the agreed-upon sale price. Lenders usually require this to ensure the loan amount does not exceed the home’s market value.
Inspection contingency: Grants the buyer the right to have the property professionally inspected for structural or systemic issues. This typically occurs within 7 to 14 days, allowing the buyer to request repairs or withdraw if problems are discovered.
Sale of existing home contingency: Means the buyer’s purchase of the new property is conditional upon them successfully selling their current home. This protects the buyer from owning two homes simultaneously.
Title contingency: Ensures the property has a clear title, free from liens, encumbrances, or ownership disputes, verified through a title search.

Buyer Considerations in a Contingent Sale

Contingencies serve as important safeguards for buyers, providing specific conditions for the transaction to proceed. These clauses protect a buyer’s financial interests and allow for due diligence before committing fully to a purchase.

Buyers have a clear responsibility to satisfy their contingencies within the agreed-upon timelines. This includes promptly applying for a mortgage, scheduling property inspections, and reviewing all relevant documents. Adhering to these deadlines, which can range from 10 to 60 days depending on the contingency type, is important, as failing to do so could result in the waiver of protection.

A benefit for buyers is the protection of their earnest money deposit. This deposit, often 1% to 5% of the purchase price, is typically held in an escrow account. If the sale falls through due to an unmet contingency specified in the contract, the buyer is generally entitled to a full refund of this deposit. However, including many contingencies can sometimes weaken a buyer’s offer, especially in competitive markets, as sellers may prefer offers with fewer conditions.

Seller Considerations in a Contingent Sale

When a seller receives an offer with contingencies, sellers evaluate the potential impact on the property’s marketability. Offers containing contingencies, particularly a home sale contingency, can make a property less appealing to other potential buyers, as it introduces uncertainty and potential delays. This can mean the property remains listed as “contingent,” which may deter other interested parties.

Sellers must carefully assess offers with various types and numbers of contingencies, weighing the offer price against the associated risks. A cash offer with no contingencies, for example, is often more attractive due to its perceived certainty and speed. Sellers also have the option to negotiate the terms of contingencies, such as shortening the timeframes for their fulfillment or setting limits on repair requests following an inspection.

Understanding the buyer’s contingency deadlines is also important for the seller. If a buyer fails to meet a deadline, the seller may issue a “notice to perform,” typically giving the buyer a short window, often 2-3 days, to either satisfy or waive the contingency. In situations with a home sale contingency, sellers might consider accepting backup offers, which can become active if the primary contingent offer falls through. This strategy mitigates the risk that the sale may not close, potentially forcing the seller to re-list the property.

Managing Contingency Periods

Once a contingent offer is accepted, the transaction enters a period where contractual timelines and deadlines become important. These dates are legally binding and dictate when each contingency must be satisfied or waived. A typical inspection period might be 7 to 10 days, while a financing contingency could extend to 20 to 30 days.

A contingency is considered met when its specified condition is fulfilled. Parties can also choose to waive a contingency, which means voluntarily giving up the protection it offers, often formalized through a written document.

If a contingency is not satisfied by its deadline, several outcomes are possible. Parties may renegotiate terms, such as a price reduction for unexpected repairs, or the contract may be terminated. In the event of termination due to an unmet contingency, the buyer typically receives their earnest money deposit back. Real estate agents and attorneys play a significant role in guiding both buyers and sellers through these procedural steps, ensuring compliance with contractual obligations and facilitating communication.