What Is a Contingent Sale in Real Estate?

A contingent sale in real estate refers to a transaction where the accepted offer is dependent on specific conditions being fulfilled before the sale can be finalized. These conditions are outlined in the purchase agreement between the buyer and seller. Contingencies allow for a structured process, ensuring certain aspects of the property or the buyer’s financial situation are satisfactory before the commitment becomes absolute. Such conditions are a common feature in property sales, providing a framework for both parties to proceed with confidence.

Understanding Contingent Sales

A contingent sale signifies a legally binding agreement for a property purchase that includes specific conditions, known as contingency clauses, which must be satisfied for the transaction to proceed to finalization. These clauses serve as protective measures, primarily for the buyer, providing an opportunity to withdraw from the contract without financial penalty if the stipulated conditions are not met. When a property is listed as “contingent,” it indicates that an offer has been accepted, but the deal is not yet closed; it remains subject to these predefined terms. This status differs from “pending,” where all contingencies have been resolved, and the sale is further along in the closing process.

The fulfillment of these conditions occurs within a specified timeframe known as the “contingency period.” This period ensures that all necessary due diligence, such as securing financing or conducting property evaluations, can be completed by the buyer. The duration of a contingency period can vary, ranging from 10 to 60 days, depending on the specific type of contingency and the agreed-upon terms between the buyer and seller. For instance, a home inspection contingency might be 7-10 days, while a mortgage contingency could extend to 30-60 days. During this time, the sale is considered “under contract” but not yet final, allowing for adjustments or termination if conditions are not met. If a contingency is not fulfilled within the agreed timeframe, the contract may become null and void, often resulting in the return of the buyer’s earnest money deposit.

Common Contingency Types

Real estate transactions frequently incorporate several common types of contingencies, each addressing a specific aspect of the property or the buyer’s capacity to purchase. These clauses provide recourse if certain predefined circumstances do not materialize.

Financing Contingency

A financing or mortgage contingency makes the sale dependent on the buyer successfully securing a loan for the property. This clause specifies a timeframe, 30 to 60 days, within which the buyer must obtain mortgage approval. If the buyer is unable to secure the necessary financing by the deadline, they can withdraw from the agreement without penalty, and their earnest money deposit is returned.

Home Inspection Contingency

The home inspection contingency allows the buyer to have the property professionally inspected within a set period, often 7 to 10 days. This inspection aims to uncover any significant defects, such as issues with the roof, electrical systems, or structural integrity. If the inspection reveals problems, the buyer can request repairs, negotiate a lower sale price, or terminate the contract and receive their earnest money back if an agreement cannot be reached. Waiving this contingency is not recommended as it removes a significant layer of protection for the buyer.

Appraisal Contingency

An appraisal contingency ensures that the property’s appraised value meets or exceeds the agreed-upon sale price. Lenders only finance up to the appraised value, so if the appraisal comes in lower than the offer, the buyer has options. These options include renegotiating the purchase price with the seller, making up the difference in cash, or terminating the contract and recovering their earnest money deposit.

Sale of Existing Home Contingency

A sale of existing home contingency means the buyer’s ability to purchase the new property is conditional upon the successful sale of their current residence. This type of contingency can have a longer duration, ranging from 30 to 90 days, to accommodate the sale process. Sellers might include a “kick-out clause” in such situations, allowing them to continue marketing the property and accept another offer if the initial buyer does not remove their home sale contingency within a specified short timeframe, usually 48-72 hours. This contingency provides flexibility for buyers who need to liquidate their current asset to finance a new purchase, though it can make an offer less attractive to a seller.

Navigating Contingencies in a Sale

The process of navigating contingencies begins when a buyer includes them as part of their initial offer on a home. These conditions are formally outlined in the purchase agreement. Once an offer containing contingencies is accepted by the seller, the property’s status becomes “contingent,” and the agreed-upon contingency period commences. This period acts as a window for the buyer to perform due diligence and ensure all contractual conditions can be met before the final commitment.

During this period, the buyer undertakes the actions necessary to satisfy each contingency. For a financing contingency, this involves actively applying for and securing a mortgage loan commitment from a lender, demonstrating pre-approval to the seller upfront. For a home inspection contingency, the buyer arranges for a professional inspection of the property, within 7 to 10 days, to identify any material defects. An appraisal is ordered to determine the property’s market value in relation to the agreed-upon price, a step lenders require to ensure the loan amount is appropriate.

To satisfy or remove a contingency, the buyer provides a signed waiver or notice indicating that the condition has been met or waived. For instance, upon receiving final mortgage approval, the buyer would formally remove the financing contingency, signifying their ability to proceed with the purchase. Once all contingencies are successfully removed, the sale transitions closer to closing, and the buyer’s earnest money deposit, which can range from 1% to 10% of the purchase price, becomes non-refundable, signaling a firm commitment to the purchase.

If a contingency is not met within its specified timeframe, the contract may be terminated. Both parties must carefully track these deadlines, as missing them can have significant financial implications, potentially leading to a breach of contract for the buyer or giving the seller grounds to cancel the agreement and retain the earnest money if the buyer is not protected by an unremoved contingency.