What Does Contingent Mean in Home Sales

By
Real Estate Agent with RE/MAX Executive Realty 91362

Understand What Contingent Means in Real Estate

Have you heard the term "contingent" when buying or selling a home and wondered what it meant? When you sell your home, you will find the word contingent cropping up time and time again. It can be used when talking about financing, offers, appraisals, and more. But what does contingent mean, and how does it affect your home sale?

Contingencies are clauses where something has to happen for the sale to proceed. If the contingency isn't met, the buyer could walk away from the deal with their house deposit or earnest money returned. Contingencies can delay your sale or send your home back onto the market in search of a new buyer.

As explained in the article above at Maximum Real Estate Exposure, in numerous multiple listing services across the country, agents can select from marking your home as "contingent" or "pending." Depending on where you are located, these two terms could have different meanings.

When selling your house, it is vital to understand these differences and how they can affect the marketing of your home. You should never underestimate nuances such as these in real estate sales as they can have a dramatic effect on outcomes.

Let's review the contingencies you are likely to face when selling your home.

Home Inspections

Most buyers will want a home inspection carried out to make sure they aren't buying a property with more problems than it's worth. If issues are found, and there are usually some issues, the buyer could use this to renegotiate the price.

They could even walk away if the repairs needed are too substantial. You might be asked to make repairs before they will proceed, and this will slow down the sale. A home inspection contingency clause is generally no longer than two weeks long but usually around a week. The buyer will be asked at the expiration of said contingency to either move forward, request their deposit monies back, negotiate a credit, or ask the seller to make necessary repairs.

Mortgage Financing

Most buyers will be using a mortgage to finance their purchase. This can fall through at the last moment, with a financing contingency allowing the buyer to walk away if this happens. Often the buyer will need to seek a loan from another lender, leading to delays in the sale. Typical time frames for mortgage contingencies are four to six weeks from the offer contract being accepted.

Buyers will be asked to apply for a mortgage by a specific date and have their commitment within the accepted time frame.

Appraisals

Lenders like to know that the home is worth the amount their borrower is offering to buy the property for. A home appraisal assessor finds the fair market value, and if they find it to be worth less than the offer, the lender might refuse the loan.

An appraisal contingency could lead to the sale falling through if the buyer can't make up the difference in this situation. Alternatively, they may want to renegotiate the price down to meet the appraisal value.

Selling Their Home

A home sale contingency will leave the completion of your sale at the mercy of the buyer's sale. You could be left waiting for the buyer to find a purchaser, which could hold up the closing of your sale for a long time.

The risk of delay with the home sale contingency means that it is better to avoid this if you can. Instead, asking the buyer to come back when they have accepted an offer from their own buyer is a way to avoid this problem. If you can continue to stay in contact with the buyer, perhaps checking how their home sale is progressing, you may not lose them as a buyer.

When you accept a home sale contingency, you are at the mercy of someone else getting their home sold. You lose complete control over the process. Are they going to price the home correctly? Did they hire an excellent real estate agent? By accepting a home sale contingency, you've made the conclusion of your home selling a risky proposition.

Negotiations

During the home selling process, most things are up for negotiation. If you don't like being bound by a contingency, you can negotiate for a better situation for your side of the deal or even add your own contingency.

If the buyer wants you to accept a home sale contingency, you could make the arrangement more favorable to you by introducing a kick-out contingency or right of first refusal. This would allow you to carry on marketing your home, and if you find a buyer offering a better deal, cancel the previous contingent offer.

You can't simply drop the first offer if something better comes along. You will be required to give notice so that they can drop their contingency and buy the home if they are able to. If they fail to do this in the required timeframe - which may only be a few days - you can end their agreement and move on.

How to Avoid Contingencies?

If you have a pre-listing inspection carried out, you might be able to avoid a home inspection clause. Though buyers might still want to have their own inspection and still want the contingency as well.

Finding a cash buyer should remove a couple of contingencies since they don't need to go to a lender for a loan. There aren't usually many cash buyers to be found, however. You could approach an investment buyer, like an iBuyer or house flipper. This should give you a considerably faster property sale, though you might get less for your home in the process.

As a seller, contingencies are a pain that can cause you many headaches and uncertainties. They mostly protect buyers and make selling your home more frustrating than it could be. For the most part, however, they are something you will have to put up with to get the best price for your home.

Final Thoughts on The Definition of Contingent

When you are selling your house, it is crucial to understand what it means for you if your agent marks your home in the multiple listing service as contingent. In some places, there is a difference in meaning between pending and contingent.

Lastly, remember that house deposits become at risk when real estate contracts are not followed. Always keep tabs on the various contingency dates in the contract and ask for extensions when needed.

Hopefully, you have a better understanding of the types of common contingencies you'll see in a typical real estate contract.

 

Posted by

Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Home Selling
Groups:
Realtors®
RE/MAX Active Rain Bloggers
Bloggers Choice Selections
Dedicated Bloggers
Active Rain Block Party
Tags:
contingent
contingencies

Spam prevention
Show All Comments
Rainmaker
5,390,848
Barbara Todaro
RE/MAX Executive Realty - Retired - Franklin, MA
Previously Affiliated with The Todaro Team

Good  morning, Bill Gassett as long as those contingencies can be satisfied, the closing will happen....

Sep 15, 2020 06:51 AM #2
Rainmaker
3,678,158
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Bill - real estate is important vocabulary in a transaction and needs a local expert to interpret and understand.    

Sep 15, 2020 07:14 AM #3
Rainmaker
964,784
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Good explanation and varies from State to State often, so good to ask questions of your agent to make sure you understand the "nuances" as you say.

Sep 15, 2020 07:34 AM #4
Rainmaker
289,302
Shannon Jones
The Shannon Jones Team - Long Beach, CA
Long Beach CA Real Estate

Great information on a very hot topic right now!

Sep 15, 2020 08:40 AM #5
Rainmaker
133,704
Dario Ferreira
Attleboro, MA
Internet Marketing

Great post.
I've noticed that buyers ask this question a lot.

Sep 15, 2020 08:52 AM #6
Rainmaker
1,131,132
Margaret Goss
Baird & Warner Real Estate - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

I know many people consider contingent and pending the same. In our area, a contingent home has not completed an inspection, attorney approval which is 5-10 days, and possibly the mortgage contingency which can be much longer.

After all that clears and the balance of the earnest money is paid, the home is pending. I'm sure there are different interpretatations of those two terrms in other areas.

 

 

Sep 15, 2020 09:09 AM #7
Ambassador
1,738,720
Alan May
Jameson Sotheby's International Realty - Evanston, IL
There's no place like home.

Fair enough.... "contingency" is not really part of common speech, so quiet a few people don't know what it means.

We, as Realtors, use it all the time, and it's part of our Realtor-speak, we assume everyone understands... but they often don't.

Sep 15, 2020 10:27 AM #8
Ambassador
3,713,401
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Bill, contingencies?  What are those?  In this area, you don't see too many of them these days!

Sep 15, 2020 10:29 AM #9
Rainer
437,120
Dan Hopper
Dan Hopper - Gold Way RE - Westminster, CO
Denver Realtor / Author / Advocate/Short Sale

What does Contingent mean?   Simply put... you do not have a fully executed contract until all contigencies have been satisfied or removed from the contract.

Sep 15, 2020 04:48 PM #10
Rainmaker
1,591,990
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker, Blackstone Realty Group - brokered by eXp Realty - Kalispell, MT
The House Kat

There are often contingencies! Here, if there are, the home is marked "Under Contract - Taking Backup Offers" or "Under Contract - with Bump Clause." If it's got no contingencies, it's listed as pending...

Sep 16, 2020 04:57 AM #11
Rainmaker
2,129,855
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

Contingencies are inevitable. But they ensure that the Real Estate process is followed and is according to what is right. 

Sep 16, 2020 05:52 AM #12
Rainer
85,421
Erik Hiss
Keller Williams Capital Partners Realty - Worthington, OH
You can trust me for all your real estate needs!

Inevitable and necessary...not contingencies means there's a greater chance of someone getting taken advantage of.

Sep 16, 2020 06:21 AM #13
Rainmaker
3,423,347
Kristin Johnston - REALTOR®
RE/MAX Realty Center - Waukesha, WI
Giving Back With Each Home Sold!

Great information.  Thanks for sharing and have a wonderful day!

Sep 16, 2020 07:07 AM #14
Rainer
112,209
Brian DeYoung
also affiliated with Howard Hanna - Ithaca, NY
The Realtor with personal investment background

frequent question from buyers.

I even have them ask what under contract means.

Sep 16, 2020 09:40 AM #15
Rainer
112,703
Trish Cole
Veterans United Home Loans of Puget Sound - Puyallup, WA

Great information.  The more consumers are informed, the better.  Working with a professional,  and knowledgable, real estate broker is so important in this market.

Sep 16, 2020 09:46 AM #16
Rainmaker
898,833
Elyse Berman, PA
Best Connections Realty, Inc. - Boca Raton, FL
Boca Raton FL (561) 716-7824 CRS, ABR, GRI,ePR

Good explanation of contingent and pending.  Here we have a third status of Backup to throw into the mix.   But like yiu, once the contingencies have been met, the property should be marked pending.

Sep 16, 2020 12:11 PM #17
Ambassador
960,837
Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Bill Gassett 
Lots of thorough info in this post.

I don't like using contingency in listing info. Most times (around here anyway), it is that Financing hits a glitch. Never easy to explain that to Clients and even other Agernts who think there must have been something wrong on the inspection...
All the best - Lynn

 

Sep 16, 2020 08:58 PM #18
Rainmaker
336,104
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

Thanks for some great explanations.  Most of our states and MLS' have various meanings, but it is always good to explain to buyers and sellers at the beginning of the process!

Sep 17, 2020 06:43 AM #19
Rainer
591,871
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

Thanks for sharing Bill...

When selling your house, it is vital to understand these differences and how they can affect the marketing of your home. You should never underestimate nuances such as these in real estate sales as they can have a dramatic effect on outcomes.

Sep 17, 2020 06:58 AM #20
Rainmaker
493,170
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Great explanation Bill! In NC we have all but eliminated contingency issues! Our contract calls for a Due Diligence period, and then a closing date.  Buyers pay a Due Diligence fee and earnest money deposit. During the DD period the buyer does inspections, sells a home, arrangement of financing, and any other things the may need to do before closing. The buyer must disclose in the contract that they have a home to sell. Both the DD money and earnset money apply to the purchase price. Once the DD money is paid it is gone forever! That also allows the buyer to walk away no questions asked up to 5PM on the DD day. After 5pm on the DD day the earnest money is gone no matter what. The only things that can save the earnest money is if the seller cannot provide clear title!

Sep 19, 2020 05:43 AM #21
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
1,081,630

Bill Gassett

Metrowest Massachusetts Real Estate
Ask Me A Real Estate Question
*
*
*
*

Additional Information