What Is a Contingent Sale on a House?

In real estate, a contingent sale means an accepted offer is not yet final, depending on specific conditions being met. This framework provides protection for both the buyer and the seller, ensuring their interests are safeguarded throughout the home sale. It sets the stage for a methodical progression towards closing, preventing unforeseen complications.

Understanding Contingent Home Sales

A contingent home sale means the purchase agreement is conditional, becoming fully binding only when predetermined requirements are satisfied. This mechanism offers a safety net for parties involved in a real estate transaction. For buyers, contingencies provide a way to withdraw from the contract without losing their earnest money deposit if a specified condition, such as securing a mortgage, cannot be met. Earnest money, typically 1% to 3% of the sales price, is a good-faith deposit held in escrow to show the buyer’s commitment.

Sellers also benefit from contingencies, as they ensure the buyer is serious and capable of fulfilling their obligations. While a contingent status means the property is under contract, it is not yet sold. The property usually remains listed as “contingent” in real estate databases, indicating that while an offer has been accepted, the conditions of that offer are still being worked through. This status informs other potential buyers that the home is not freely available, but also signals that the current deal could still fall through if the contingencies are not resolved.

Common Contingency Types

Several common contingencies are frequently included in home sale contracts:

• Financing or Mortgage Contingency: Allows the buyer to cancel the contract if they cannot secure the necessary loan by a specified date. This protects the buyer from being obligated to purchase a home they cannot afford. The loan approval process can take several weeks, typically 30 to 60 days.
• Inspection Contingency: Grants the buyer the right to have the home professionally inspected within a set timeframe, often 7 to 14 days, after the contract is signed. If the inspection reveals significant issues, the buyer can request repairs, a price reduction, or terminate the agreement.
• Appraisal Contingency: Protects the buyer by making the sale dependent on the home appraising for at least the purchase price. If the appraisal comes in lower, the buyer can renegotiate the price, pay the difference, or exit the contract without penalty. Lenders require an appraisal to ensure the property’s value supports the loan amount.
• Sale of Existing Home Contingency: Allows a buyer to make their purchase offer conditional on the successful sale of their current home. This protects the buyer from carrying two mortgages simultaneously. These often include a “kick-out clause,” which permits the seller to continue marketing the home and accept a backup offer if the buyer’s home isn’t sold within a specific timeframe, usually 30 to 60 days.
• Title Contingency: Ensures the seller can provide a clear title to the property, free from undisclosed liens, encumbrances, or ownership disputes. A title search verifies legal ownership and identifies any issues. If significant title defects are found that cannot be resolved, the buyer can terminate the contract.

Navigating the Contingency Period

Each contingency comes with a specific deadline outlined in the purchase agreement, and these timelines are legally binding. Missing a deadline can result in the automatic waiver of a contingency or the right to terminate the contract.

When a condition is met, such as a buyer securing a loan commitment, the contingency is considered satisfied. Buyers may also choose to waive a contingency, even if the condition hasn’t been fully met. Formal written notice is typically required to document satisfaction or waiver.

If a contingency cannot be satisfied within the agreed-upon timeframe, such as an appraisal coming in too low and renegotiation failing, the contract may be terminated. In such instances, the buyer typically receives their earnest money deposit back, provided they acted in good faith and adhered to the contract terms.

Once all conditions are either satisfied or formally waived, the contingencies are removed. This often involves signing an addendum or notice of removal, which strengthens the contract significantly. The removal of contingencies indicates that the transaction is moving closer to a definitive closing, reducing the likelihood of the deal falling apart.