In real estate, a contingency is a condition or set of conditions that must be met before a real estate contract becomes legally binding. For example, a common contingency in a contract for the sale of a house is that the sale is contingent on the buyer obtaining financing for the purchase. In other words, if the buyer is unable to obtain financing, the contract is not legally binding and the sale does not go through. Other examples of contingencies include a home inspection or sale of the buyer’s existing home.
What are the most common contingencies?
The most common contingencies in real estate contracts include:
1. Financing contingency
This contingency is included in the contract to ensure that the buyer can obtain financing for the purchase. It allows the buyer to terminate the contract if they are unable to obtain financing on terms that are acceptable to them.
2. Home inspection contingency
This contingency allows the buyer to have a professional inspection of the property to identify any potential problems or defects. The buyer can use the inspection report to negotiate repairs with the seller or to terminate the contract if they are not satisfied with the condition of the property.
3. Appraisal contingency
This contingency is related to financing, it allows the buyer to cancel the contract if the property does not appraise for the purchase price.
4. Sale of existing home contingency
This contingency is included when the buyer needs to sell their current home in order to purchase the new property. It allows the buyer to terminate the contract if they are unable to sell their current home.
5. Title contingency
This contingency allows the buyer to review the title of the property and ensure that it is free of any liens or encumbrances. If there are any issues with the title, the buyer can terminate the contract.
6. Insurance contingency
This contingency is also related to financing, it allows the buyer to cancel the contract if they are unable to obtain insurance for the property on terms that are acceptable to them.
Note that the contingencies can vary depending on the area or the country and the terms of the contract.
What to Expect from a Home that is Marked Contingent
When a home is marked as “contingent” in the real estate market, it means that a purchase offer has been accepted by the seller and is pending the completion of certain conditions. This typically means that the property is under contract, but the sale is not final until the contingencies are satisfied or waived.
As a buyer, you should expect that the property is no longer available for showings or other offers and the seller is working with a buyer who has already presented an accepted offer. However, it is important to note that the sale is not final until the contingencies have been satisfied or waived and that the seller is allowed to entertain backup offers.
As a seller, you should expect that if the buyer cannot satisfy the contingencies, your home will be back on the market, and you may have to start the process all over again.
It is important to note that the length of time it takes for a property to go from “contingent” to “closed” can vary greatly depending on the specific contingencies included in the contract and how quickly they are satisfied or waived.
Should I accept an offer with a home sale contingency?
As a seller, whether or not you should accept an offer with a home sale contingency depends on your specific situation and priorities. Here are a few things to consider:
- Timing: A home sale contingency means that the sale of the property is contingent on the buyer first selling their current home. This can add significant time to the closing process and may not be ideal if you need to sell your home quickly.
- Risk: Accepting an offer with a home sale contingency means that the sale of your home is dependent on the buyer’s ability to sell their current home. If the buyer is unable to sell their home, the sale of your home may fall through, which can be a risk.
- Competition: With a home sale contingency, you may miss out on other potential buyers who do not have a home sale contingency and are ready to move forward with the purchase right away.
- Price: If a buyer is offering a higher price for your home and includes a home sale contingency, it may be worth considering accepting the offer.
- Back-up offer: It may be a good idea to have a backup offer from another buyer, in case the first buyer’s home sale contingency falls through.
Ultimately, it is important to weigh the pros and cons of accepting an offer with a home sale contingency and make a decision that is in line with your specific needs and priorities. It may be a good idea to consult with a real estate agent or attorney before making a decision.
Can you put in an offer on a house that is contingent?
Yes, it is possible to put in an offer on a house that is already under contract with a contingency clause. This is known as a “backup offer” or “secondary offer”. This means that the seller will have multiple offers and the seller can choose which one to accept.
When a property is under a contingency contract, the seller can still accept a backup offer, but typically the seller will only move forward with the back-up offer if the primary contract falls through. This can happen if the buyer is unable to satisfy the contingencies or if the primary contract is otherwise terminated.
It is important to note that the terms of the back-up offer may be different from the primary offer, for example, the price might be different, the contingencies might be different, and the closing date may be different.
It is also important to note that in some areas, the seller is not allowed to accept back-up offers, so it’s best to consult with a local real estate agent or attorney to understand the rules and regulations in your area.
In summary, it is possible to put in an offer on a house that is already under contract with a contingency clause, but the seller will only move forward with the back-up offer if the primary contract falls through.
Can I negotiate a contingent offer?
Yes, as a buyer, you can negotiate a contingent offer when making an offer on a property. Contingencies are typically included in a purchase contract to protect the buyer and provide an opportunity for the buyer to back out of the sale if certain conditions are not met.
When negotiating a contingent offer, you can:
1. Request specific contingencies
You can request specific contingencies that are important to you, such as a home inspection contingency, a financing contingency, or a contingency that the property must pass an appraisal at or above the purchase price.
2. Waive contingencies
You can also negotiate to waive certain contingencies, such as a home inspection contingency if you are comfortable with the condition of the property.
3. Negotiate the terms of the contingencies
You can negotiate the terms of the contingencies, such as the length of time you have to complete the contingency or the specific procedures that must be followed.
4. Add a home sale contingency
If you are selling your current home and purchasing a new one, you can add a home sale contingency, which means that the sale of the property is contingent on the sale of your current home.
It’s important to note that negotiating a contingent offer is a delicate process and it’s best to have an experienced real estate agent or attorney to guide you through the process and help you to understand the legal and financial implications of the contingencies.
In summary, as a buyer, you can negotiate a contingent offer when making an offer on a property. You can request specific contingencies, waive contingencies, negotiate the terms of the contingencies and add a home sale contingency if you are selling your current home and purchasing a new one.
How can I protect my home sale from contingencies?
As a seller, you want to do everything you can to protect your home sale from contingencies in order to minimize the risk of the sale falling through. Here are a few ways you can do this:
1. Review the buyer’s pre-approval letter or proof of funds:
Before accepting an offer, make sure the buyer has a solid financing contingency in place, such as a pre-approval letter from a lender or proof of funds. This will give you an idea of the buyer’s ability to obtain financing and complete the purchase.
2. Negotiate the terms of the contingencies:
If the buyer includes contingencies in the offer, such as a home inspection contingency, negotiate the terms of the contingencies. You can limit the time the buyer has to complete the contingency, or set specific procedures that must be followed.
3. Have a backup offer:
Accepting an offer with a home sale contingency can be risky, so it’s a good idea to have a back-up offer from another buyer, in case the first buyer’s home sale contingency falls through.
4. Be open to different types of financing:
Some buyers may use different types of financing, such as FHA or VA loans, which may have stricter requirements. Be open to considering different types of financing to increase your chances of closing the sale.
5. Consult with a real estate agent or attorney:
Before accepting an offer, it’s a good idea to consult with a real estate agent or attorney who can help you to understand the legal and financial implications of the contingencies and advise you on how to protect your home sale.
In summary, as a seller, you can protect your home sale from contingencies by reviewing the buyer’s pre-approval letter or proof of funds, negotiating the terms of the contingencies, having a back-up offer, being open to different types of financing, and consulting with a real estate agent or attorney.
Contingent Vs. Pending In Real Estate
In real estate, “contingent” and “pending” are both terms used to describe the status of a property that is under contract, but they have slightly different meanings.
A property is considered “contingent” when a purchase offer has been accepted by the seller and is pending the completion of certain conditions. These conditions are typically related to financing, home inspections, or the sale of the buyer’s existing home. The property is considered to be under contract, but the sale is not final until the contingencies are satisfied or waived.
A property is considered “pending” when the contingencies have been satisfied and the sale is in the process of closing. In other words, the property is no longer available for showings or other offers, but the sale has not yet been completed.
In summary, a property is considered “contingent” when the sale is pending certain conditions, while a property is considered “pending” when the sale is in the process of closing and the contingencies have been satisfied.
