What Is a Contingent Sale in Real Estate?

A contingent sale in real estate describes a transaction where the finalization of a property purchase hinges on specific conditions being satisfied. The completion of the sale is not guaranteed until these predetermined requirements are fully met. It effectively means the deal is in progress but remains provisional.

Defining a Contingent Sale

A contingent sale means a real estate deal is “under contract” but not yet “closed.” A “contingency” is a condition that must be fulfilled for the purchase agreement to become binding. These conditions are typically part of the formal purchase contract, protecting the buyer, seller, or both.

If all conditions are met within the agreed timeframe, the sale proceeds to closing. If a condition is not satisfied, the contract can often be terminated without penalty, and any earnest money deposit is usually returned. This earnest money, typically 1% to 3% of the purchase price, is held in escrow by a neutral third party, demonstrating the buyer’s serious intent.

Common Types of Real Estate Contingencies

Real estate contracts frequently include several common contingencies:
Financing Contingency: Makes the sale dependent on the buyer securing a loan. This allows the buyer to withdraw if they cannot obtain mortgage approval within a specified period, typically 30 to 60 days.
Appraisal Contingency: Ensures the property’s appraised value meets or exceeds the purchase price. If the appraisal is lower, the buyer can renegotiate, cover the difference, or terminate the contract without losing earnest money.
Inspection Contingency: Grants the buyer the right to a professional home inspection. If significant issues are found, the buyer can request repairs, negotiate a price reduction, or cancel the deal, generally within 7 to 10 days of the accepted offer.
Sale of Current Home Contingency: Protects buyers who need to sell their existing property to finance the new purchase. This allows them to exit the contract if their current home does not sell by a specific deadline.
Title Contingency: Ensures the seller can transfer clear legal ownership, free from liens or other encumbrances. A title search is conducted, and if issues are found, the buyer can negotiate remedies or terminate the agreement.

Implications for Buyers and Sellers

For buyers, contingencies serve as protective clauses, offering an important safety net during the home-buying process. They provide the flexibility to withdraw from a deal if unforeseen issues arise, such as a low appraisal or significant defects discovered during an inspection, without forfeiting their earnest money deposit. Buyers must act promptly to fulfill their obligations within agreed timelines to maintain these protections.

For sellers, accepting a contingent offer introduces uncertainty and can prolong the sales process. The property might remain listed as “contingent” or “pending with contingencies,” deterring other potential buyers. There is a risk the deal may fall through if conditions are not met, requiring the seller to relist the property. In competitive markets, offers with fewer contingencies are often more attractive to sellers seeking a swift closing.

Handling Contingent Transactions

Once a contingent offer is accepted, effective management of the transaction is crucial. Adhering to agreed-upon timelines for fulfilling contingencies is important for both parties. For instance, buyers must schedule inspections and appraisals promptly within the contractual windows. Clear and consistent communication among buyers, sellers, and their respective real estate agents and lenders is essential to navigate the process smoothly.

Should issues arise from a contingency, such as an unsatisfactory inspection report or a low appraisal, these are typically addressed through negotiation. Parties may agree to contract amendments, such as price adjustments or seller-funded repairs. If a mutual resolution cannot be reached, the contract may be terminated in accordance with the contingency’s terms. Once contingencies are satisfied, a formal process of “removing” or “waiving” them occurs, signaling that the conditions have been met and moving the transaction closer to its final closing.