Why Would a House Go From Pending to Contingent?

Real estate transactions involve various stages, which can be confusing for those unfamiliar with the terminology. A common point of confusion arises when a property’s status shifts from “pending” to “contingent.” This change indicates a significant development in the sale process, moving it from a secure state to one with unresolved conditions. Understanding why this transition occurs is important for both prospective buyers and sellers. This article clarifies these statuses and explains the reasons behind such shifts.

Understanding Property Statuses

“Pending” in real estate signifies that a seller has accepted an offer, and all contractual conditions, known as contingencies, have been satisfied or waived. At this stage, the transaction is moving forward with a strong expectation of closing. The property is expected to be sold to the current buyer, with remaining steps primarily administrative, leading to the final transfer of ownership.

In contrast, a “contingent” status means an offer has been accepted, but the sale depends on certain specified conditions being met within a defined timeframe. These contingencies are clauses in the purchase agreement that must be fulfilled for the contract to become legally binding. A property listed as contingent indicates that while a buyer and seller have an agreement, the deal is not yet final and could still fall through if the stipulated conditions are not successfully resolved. The key difference lies in the certainty of the sale: pending suggests a near-finalized deal, while contingent indicates critical hurdles still need to be cleared.

Common Reasons for Status Change

A property shifting from pending back to contingent status indicates a previously met or waived condition has re-emerged or a new issue has arisen.

Failed Home Inspection

One frequent reason is a failed home inspection. After an accepted offer, buyers conduct a professional home inspection. If the report reveals significant defects, the buyer may request repairs or a price reduction. If the buyer and seller cannot agree, the buyer may exercise their inspection contingency, and the contract status might revert to contingent or terminate.

Financing Issues

Financing issues also commonly lead to a status change. A buyer’s loan might fall through if their financial situation changes, causing the lender to withdraw the loan commitment. Lenders require documentation to finalize loan approval. The financing contingency period allows the buyer time to secure a mortgage. If the buyer cannot obtain financing within this timeframe, they can cancel the contract without penalty, leading to a contingent status or termination.

Appraisal Gap

Another financial hurdle is an appraisal gap. Lenders require an independent appraisal to ensure the property’s value supports the loan amount. If the appraised value comes in lower than the agreed-upon purchase price, an appraisal gap exists. The lender will only finance up to the appraised value, meaning the buyer must cover the difference in cash, renegotiate the price, or terminate the contract if an appraisal contingency is in place.

Buyer’s Home Sale Contingency

A buyer’s home sale contingency can also cause a shift. This clause allows a buyer to purchase a new home only if their current property sells by a specified date. If the buyer’s existing home does not sell within the agreed-upon timeframe, they may be unable to proceed with the new property. This can lead to the initial offer becoming contingent again or the contract being dissolved.

Property Title Problems

Problems discovered with the property title are another reason for a status change. A title search is conducted to confirm clear ownership and identify any issues. If significant title defects are found that cannot be resolved before closing, the buyer may withdraw their offer, protected by a title contingency. These issues must be cleared for the transaction to proceed, and their discovery can cause the status to revert.

What a Contingent Status Means

When a property is in contingent status, an accepted offer exists, but the transaction’s completion is not guaranteed. The seller retains the right to continue marketing the property. This allows the seller to receive and accept backup offers, which become active if the primary contingent offer fails to close.

The contingent status means the transaction remains active, but it is vulnerable to falling apart if the specified conditions are not met. The fulfillment of these contingencies, such as a successful inspection or securing financing, is important for the deal to move forward. If negotiations related to these conditions fail or if a contingency cannot be satisfied, the contract can be terminated without penalty to the buyer, especially if their earnest money deposit is protected by the contingency clause.

Steps for Buyers and Sellers

For sellers whose property moves to a contingent status, continue marketing the home. Seek backup offers as a safety net. Work closely with their real estate agent to understand the reasons for the contingency and prepare to address those issues for a new buyer.

Buyers with a contingent offer accepted should diligently work to satisfy their contingencies within the agreed-upon timeframe. This includes promptly providing all necessary financial documents to their lender to secure financing. They should also schedule and review inspection reports quickly, and be prepared to negotiate with the seller regarding any findings. Other interested buyers observing a property in contingent status can inquire about the specific contingencies and consider submitting a backup offer. Communicate regularly with their real estate agent about the property’s status to act swiftly if the primary offer falls through.