What Is a Contingent Offer on a Home?

Purchasing a home is a significant financial and personal milestone. The process involves various terms and conditions designed to safeguard both buyers and sellers. A contingent offer is a common element, providing a structured approach to transactions while accounting for specific conditions. This helps ensure all parties are protected as they move towards finalizing a sale.

Understanding Contingent Offers

A contingent offer on a home is an offer to purchase a property that includes specific conditions or clauses that must be met for the contract to become legally binding. The term “contingent” means “depending on certain circumstances,” indicating that the sale’s progression is conditional upon these requirements being satisfied. Both the buyer and seller must agree to the terms of each contingency and sign the contract before it becomes binding. If these conditions are not fulfilled, the party protected by the contingency typically has the right to withdraw from the deal without penalty.

The fundamental purpose of incorporating contingencies into a real estate contract is to protect the interests of either the buyer or the seller. They act as a safety net, allowing a party to terminate the purchase agreement and often recover their earnest money deposit if certain conditions are not met. For instance, a buyer might include a contingency to avoid being committed to a home with unforeseen issues or financing problems. Similarly, sellers can benefit from clear frameworks that define what needs to happen before closing, ensuring commitment from the buyer.

When an offer is accepted with contingencies, the property is often listed as “contingent” in the market, signifying that an agreement is in place but certain conditions still need resolution before the sale is finalized. This differs from a “pending” status, which typically means all conditions have been met or waived, and the sale is moving directly toward closing. Contingencies help manage risks in real estate transactions, providing a structured way to address potential issues before a firm commitment is made.

Common Contingency Types

Several types of contingencies are commonly included in residential real estate offers.

A financing contingency, also known as a mortgage contingency, is for buyers who require a loan. This clause specifies a timeframe, typically 30 to 60 days, for the buyer to secure mortgage approval. If financing is not obtained, the buyer can usually withdraw from the deal without losing their earnest money deposit. This protects buyers from being obligated to purchase a home they cannot afford due to a lack of loan approval.

The home inspection contingency allows the buyer a specified period to have the property professionally inspected. This period commonly ranges from 7 to 10 days after the offer is accepted. If the inspection reveals major problems, the buyer can negotiate repairs, request a price reduction, or cancel the contract without penalty. This contingency provides peace of mind, ensuring the buyer is aware of the property’s state before finalizing the purchase.

The appraisal contingency safeguards the buyer by stipulating the property must appraise for at least the agreed-upon sale price. Lenders typically will not provide a mortgage for more than a home’s appraised value. If the appraisal comes in low, this contingency allows the buyer to renegotiate the price or terminate the contract and recover their earnest money. Without this clause, a buyer might be obligated to pay the difference out of pocket or risk losing their earnest money.

A sale of existing home contingency is included when a buyer needs to sell their current property to finance the new purchase. This clause provides a specific timeframe, often 1 to 3 months, for the buyer to sell their existing home. If the current home does not sell, the buyer can typically withdraw from the new home purchase agreement without financial penalty. Sellers in competitive markets might be less inclined to accept offers with this contingency due to the extended uncertainty it introduces.

The Contingency Process

Once a contingent offer is accepted, a defined “contingency period” or “due diligence period” begins. This period sets the timeline for the buyer to fulfill their responsibilities related to each contingency. The length varies depending on the contingency type and negotiated terms, typically ranging from a few days to several weeks. For instance, inspection contingencies often have a shorter window (7 to 10 days), while financing contingencies can extend to 30 to 60 days.

During this time, the buyer undertakes specific actions to satisfy the contingencies. For a financing contingency, the buyer applies for a mortgage loan and provides financial documentation to the lender. The lender then proceeds with the loan approval process, verifying financial details and often ordering an appraisal.

For an inspection contingency, the buyer arranges a professional home inspection within the agreed timeframe. After reviewing the report, the buyer can submit requests to the seller for repairs, credits, or a price reduction based on issues discovered. Communication and negotiation are key throughout this process, with parties exchanging information to resolve concerns. The contract may also specify a period for the seller to respond to buyer requests, often 3 to 10 days.

Outcomes of Contingent Offers

Once the contingency period concludes, there are two primary outcomes: either the contingencies are met, or they are not. If all conditions in the purchase agreement are satisfied and removed, the offer transitions into a firm contract. This means the deal becomes legally binding, and both parties are committed to proceeding toward the final closing of the home sale. The buyer’s earnest money deposit, often 1% to 3% of the purchase price, typically remains in escrow and is applied towards the down payment or closing costs.

If one or more contingencies are not fulfilled within the agreed timeframe, the situation becomes more complex. For example, if a financing contingency is unmet because the buyer cannot secure a loan, or an appraisal comes in too low, the buyer usually has the right to terminate the purchase agreement. If a home inspection reveals significant defects the seller is unwilling to address, the buyer can often walk away from the deal. In these scenarios, contract terms typically dictate the buyer receives a full refund of their earnest money deposit.

However, failure to meet a contingency does not always lead directly to termination. It often initiates a period of renegotiation between the buyer and seller. They might adjust the purchase price, agree on seller credits for repairs, or modify other terms to keep the deal alive. If an amicable resolution cannot be reached, the contract may be terminated, and the earnest money is returned to the buyer, provided they adhered to the contract’s terms and timelines. If a buyer backs out without a valid contingency reason or after contingencies are removed, they may risk forfeiting their earnest money deposit to the seller.