What Is a Contingent Offer on a House?

Understanding the various components of a real estate transaction is important when considering a home purchase. An offer to purchase a property represents a formal proposal from a potential buyer to a seller, outlining the terms and conditions under which the buyer is willing to acquire the home. While some offers are straightforward, many include specific conditions that must be satisfied for the sale to finalize. These conditional proposals are known as contingent offers, which are a fundamental part of real estate agreements. This article clarifies what a contingent offer entails and its implications for both buyers and sellers.

Understanding a Contingent Offer

A contingent offer in real estate signifies that the agreement to purchase a home is conditional upon certain events or actions occurring within a specified timeframe. The sale will only proceed to closing if these predetermined conditions are met. This differs from a “clean” or “non-contingent” offer, which typically has fewer or no conditions attached, making it more appealing to sellers seeking a swift, certain transaction. The fundamental purpose of incorporating contingencies is to provide protective clauses for the parties involved, most commonly the buyer. These clauses act as safeguards, allowing a buyer to withdraw from the purchase agreement without financial penalty, such as losing their earnest money deposit, if the specified conditions are not satisfied. Conversely, contingencies can also protect sellers under certain circumstances.

Common Contingency Types

Real estate transactions frequently feature several types of contingencies, each serving a distinct protective role for the buyer.

Financing Contingency: This makes the sale dependent on the buyer securing a mortgage loan for the property. This clause typically grants the buyer a period, often 30 to 60 days, to obtain loan approval, ensuring they are not obligated to purchase a home they cannot finance.
Appraisal Contingency: This stipulates that the home must appraise for at least the agreed-upon purchase price. If the appraisal comes in lower, this contingency allows the buyer to renegotiate the price, cover the difference, or withdraw from the contract without losing their earnest money. Lenders often require an appraisal to ensure the property’s value supports the loan amount.
Inspection Contingency: This grants the buyer the right to have the home professionally inspected within a typical timeframe of 7 to 10 days after offer acceptance. Should the inspection reveal significant issues, this contingency permits the buyer to request repairs, negotiate a price reduction, or cancel the contract.
Sale of Existing Home Contingency: The buyer’s purchase is contingent upon the successful sale of their current residence. This can vary widely in duration, often ranging from 30 to 90 days, providing the buyer flexibility but introducing uncertainty for the seller.
Title Contingency: This ensures that the property has a clear legal title, free from liens, disputes, or other issues that could impede the transfer of ownership. A title company conducts a search to verify the seller’s right to sell and that no outstanding claims exist against the property.

The Contingency Process

Once a contingent offer is accepted, the real estate contract enters a period during which these conditions must be addressed. The duration of this contingency period is typically outlined in the purchase agreement, often ranging from 10 to 60 days, depending on the specific contingency and local market practices. For instance, a mortgage contingency might last 30 to 60 days, while an inspection contingency could be much shorter, around 7 to 10 days.

During this period, the buyer is responsible for fulfilling the requirements of each contingency, such as applying for a mortgage, scheduling the home inspection, or initiating the sale of their current home. Once a condition is met and the buyer is satisfied, they formally “waive” or remove that contingency, indicating their intent to proceed with the purchase.

If a contingency is not met to the buyer’s satisfaction, or if an issue arises that cannot be resolved, the buyer generally has the right to terminate the contract. In such cases, the buyer’s earnest money deposit, typically 1% to 3% of the sale price, is usually returned to them. However, if the buyer decides to back out for reasons not protected by a contingency, they risk forfeiting this deposit to the seller. Issues discovered during a contingency period can also lead to renegotiation between the buyer and seller regarding repairs or price adjustments.

Implications for Buyers and Sellers

For buyers, contingent offers serve as a significant protective mechanism, offering peace of mind by allowing them to thoroughly evaluate the property and their financial readiness before finalizing a major investment. These clauses provide an essential “escape hatch” if unforeseen problems arise with the home, financing, or other critical aspects of the transaction. However, including numerous or lengthy contingencies can make a buyer’s offer less competitive, particularly in a seller’s market where clean offers are often preferred.

From a seller’s perspective, accepting an offer with contingencies introduces a degree of risk and uncertainty. Such offers carry a higher potential for the deal to fall through, as the sale is not guaranteed until all conditions are satisfied and waived. Contingencies can also extend the overall closing timeline, which may be undesirable for sellers seeking a quick transaction. While contingent offers can broaden the pool of potential buyers, especially in slower markets, sellers often weigh the benefits of a higher offer against the increased risk and potential delays associated with these conditions.