What does contingent mean in real estate?
If you’re in the market to buy a house, you probably spend a lot of time looking at listings. In your search, you might come across home listings listed as “contingent.” Does that mean they’re not for sale anymore? Read on to learn what contingent listings are, and whether you should get your hopes up over these homes.
What does contingent mean in real estate?
In general, contingent means “depending on certain circumstances.” In the world of real estate transactions, it means the sale depends on the contract’s contingencies being met. A contingent listing is one where the seller has accepted an offer, but is opting to keep the listing active while they make sure all conditions are properly met.
If the contractual conditions are met — both by the buyer and the seller — the sale will go through. But if an issue comes up, one or the other party may have the right to back out of the contract. In this case, a contingent-listing home might return to the market and become available for purchase again.
What are common contingencies in real estate?
Real estate transactions can involve massive amounts of money, so both buyers and sellers want to make sure that there aren’t any surprises waiting for them at the finish line. Both parties can include contingencies in the transaction to protect themselves from unexpected situations. Here are some of the most common ones:
Appraisal
If a buyer is getting a mortgage to buy a home, they will almost always include an appraisal contingency in their offer. Lenders have a home appraised to make sure it is worth enough to properly secure the mortgage they’re offering. If the home appraises for less than expected, the lender may demand a higher down payment or refuse to make the loan. An appraisal contingency lets the buyer back out of the purchase if the home appraises too low for their lender to move forward with the loan as expected.
Title
Another common and important contingency for buyers is a title contingency. This lets the buyer back out of the purchase if they conduct a title search and find that the seller doesn’t have clear title to the home or if there are liens against the home that could impact their ownership rights after the purchase.
Home inspection
A home inspection contingency allows buyers to conduct a professional inspection of a property before they purchase it. This can give buyers a heads up on any potential problems and necessary repairs. The contingency may outline the maximum amount that the buyer is willing to pay to repair the home. For example, it could allow them to back out of the purchase if expected repair costs exceed $10,000. In hot real estate markets, buyers who are facing stiff competition sometimes waive the inspection contingency. But it’s typically standard.
Mortgage
Even if a buyer gets preapproved for a loan, there’s always a chance that something will come up and cause their deal with the lender to fall through. Mortgage contingencies let the buyer off the hook if they get denied for a loan despite making reasonable attempts to get approved.
Home sale
If the buyer already owns a home, they might plan to use the proceeds from selling that property to pay for their new one. Buyers in this situation can include a contingency in their offer so that the new purchase will only go through in the event that they sell their previous home by a certain date.
New housing
Sellers also need somewhere to live after they leave their current house. Sellers who haven’t found their next home yet can accept an offer, but add a contingency that allows them to back out of the sale if they aren’t able to find a new place to live by a certain date.
What is an example of contingent?
Here’s an example of a real estate contingency: A buyer offers to purchase a home for $400,000, making an $80,000 down payment. They include an appraisal contingency, stating that the house must appraise for at least that amount, and an inspection contingency, limiting expected repair costs to $15,000. The offer is accepted, and the contract is signed.
If the appraisal comes back for $400,000 or more, and the inspection shows no major issues, the sale can go through. However, if the home appraises for less than $400,000, or the inspection identifies more than $15,000 in necessary repairs, the buyer can back out of the contract or amend their offer.
Types of contingent statuses
Here are a few different types of contingent listings that you might see on the market.
Contingent: Continue to show
This means that the seller has accepted an offer with contingencies, but wants to continue showing the home to other potential buyers in case the offer falls through.
Contingent: No show
The seller has accepted an offer and does not wish to continue showing the home to other potential buyers. This typically means that the offer has few contingencies or contingencies that are unlikely to be problems.
Contingent: With kick-out
The seller can opt to back out of the offer they’ve accepted if the attendant contingencies are not met by a certain deadline.
Contingent: With no kick-out
The seller has accepted an offer with contingencies, and has not set a deadline for them to be met. In this case, the process may take longer, because the buyer is in no rush to fulfill all the contingencies.
Short sale contingent
A listing that is short sale contingent means that the seller has accepted an offer and is willing to sell the home for less than the amount that they owe to their mortgage lender. Short sales can take a long time to complete because the lender is involved. In these cases, the seller reserves the right to receive backup offers in case the current offer falls through.
Contingent probate
Probate is the legal process through which the courts administer the assets of someone who has died. As in short sale contingent listings, sellers of probate sale homes have accepted an offer, but the difficulty of the transaction due to the probate process means they’re looking for backup offers.
What’s the difference between contingent and pending?
Contingent and pending are similar statuses, but there are essential differences. Put simply, an accepted offer that has contingencies begins as contingent. Once those requirements are met, the offer moves to pending. An offer that is pending is much closer to closing than one that is contingent, so it’s usually not worth looking at pending listings.
How long does it take to go from contingent to pending?
This time frame varies widely from one transaction to another. A deal with fewer contingencies will likely move faster than one with many. And a deal with no kick-out clause may take particularly long, because there is no deadline set for the buyer to meet all necessary criteria.
FAQ
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Most accepted offers do eventually become sales, but you never know. It is still worth looking at a home listing that is contingent — especially if the listing agent is still actively showing it. That can indicate an expectation that the accepted offer might fall through.
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Yes, you can still make an offer on a home that is a contingent listing. Depending on the type of contingency, the seller might back out and accept your offer. At a minimum, it puts you at the front of the line if the sale falls through.
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It’s not always possible. But, in general, the fewer contingencies that you place on your offer to buy a home, the more competitive your offer will be.
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Not very, but it does happen. According to the National Association of Realtors, about 5 percent of real estate transactions fall through before closing.
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Yes, sellers can back out of contingent offers if the contingencies aren’t satisfied. They can back out in other situations as well, but there could be financial consequences if they back out without a good reason.
Bottom line
If you’re looking at contingent listings, work with your Realtor to identify what the contingencies are and whether it’s worth trying to make an offer. While the odds are against you, there’s still a chance that the sale could fall through and you’ll have the opportunity to buy the home.
