11 Jun What Does Contingent Mean in Real Estate
If you’re buying, selling, or just intrigued by real estate, you’ve heard the word contingency. You can find it in various terms like contingent listings, contingent offers, finance contingencies, etc. It can be baffling if you see a listing for a home you want, but it’s listed as contingent.
Here we’ll discuss the meaning of contingency, the difference between it and pending, common contingencies, and what you can expect from a contingent listing.
What Does Contingent Mean in Real Estate?
When you see a home is listed as contingent, it means that an offer has been made and accepted but that the final sale is contingent on specific conditions being met by the buyer, the seller, or both. If the required contingencies are not met, the sale will not close. Both parties can then back out of the agreement, and the buyer gets to keep their earnest money deposit (if they paid one).
For example, buyer-required contingencies could be they must sell their current home first or that they must secure a mortgage with a lender. So, although their offer has been accepted, the sale can only close if the criteria are met first. But, there are other categories of contingencies too!
So if you see a contingent listing, there’s still hope! The seller is keeping the listing active in case the criteria aren’t met.
What’s the Difference Between Contingent and Pending?
People often confuse contingent and pending listings. Pending means that the listing was initially contingent, but now the buyer and agent feel the requirements were met and are now moving forward with the sale. Therefore, the sale is now in progress.
Most Common Contingencies
As we’ve already said, a home may be listed as contingent for many reasons. Up to 76% of home sale offers were listed as contingent in May 2020, according to the National Association of Realtors (NAR). Here are some of the most common contingencies.
It’s essential that buyers know what they’re getting into when purchasing a home. To that end, a home inspection contingency is often requested. They can then use the home inspection report to negotiate the price of the house or ask that repairs are made.
The lender often requests this contingency, as they don’t want to lend more money than the home is worth. With the appraisal contingency, the sellers will have the home appraised and, hopefully (for them), find that it is worth equal to or of higher value than the buyer’s offer. If the appraisal is low, the home’s sale price will have to be renegotiated, or the buyer can make up the difference with their own money. A second appraisal may challenge the first appraisal if parties don’t agree with the determined value and believe that errors were made.
A Financing contingency is also known as a mortgage contingency. It’s when the buyer is allowed out of the contract if they cannot secure a mortgage. This is probably one of the most common kinds of contingencies, and it can also cause significant delays in many home sale closings. This is one reason that given a choice between a buyer getting a mortgage or a buyer with cash, the seller will gravitate toward the cash sale.
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Home Sale Contingency
A home sale contingency is when the buyer must first sell their current home before purchasing the other. This puts the deal on the table in a state of limbo while the buyer is also a seller. It isn’t an ideal situation if you have to wait for the sale of another home before your sale can close.
Contingent – Continue to Show (CCS)
The CCS is when the seller has accepted an offer, but there are contingencies, so they want the property to continue to be shown. If the contingencies aren’t met, they don’t want to be without other offers to consider.
Contingent – No Show
Similar to CCS, this contingency is when an offer has been accepted, and the property is no longer shown. This might be done in the case of high confidence that the buyer will fulfill the contingency criteria. Once the requirements are met, the status will change to pending because the sale process will have begun.
Contingent – With Kick Out
This contingency means that a deadline is in place, and the buyer must fulfill the requirements by the specified date. Then, the home can continue to be shown and offers considered.
Contingent – With No Kick Out
This contingency means that there is no deadline in place. Therefore, the buyer has no set time frame for fulfilling the requirements. And even if a better offer comes in, the seller cannot accept it.
Can I Accept an Offer with a Home Sale Contingency?
It would be wise to exercise caution when considering an offer with an attached contingency. It could tie your hands and significantly slow the sale of your home. In the case of a sale contingency, consider responding that you would like to weigh their (the seller’s) offer once they have accepted an offer on their home. If you do accept their offer, you can also keep in regular contact with them regarding the sale of their home.
Can I Negotiate a Contingent Offer?
The good news is, yes, you can negotiate a contingent offer. If you accept a home sale contingency, you should negotiate the best possible terms for yourself. This would include a kick-out clause, which states that you can continue to show your home, and if you get a better deal, you can take it. Of course, you’ll have to give them notice and an opportunity to close on the property, but if they can’t, you can terminate the agreement.
How to Protect My Home Sale from Contingencies?
The best protection against the delays of a contingency is a cash buyer. Although they are rare, they do happen. A cash buyer is interested in buying your home and will show that by offering to purchase without the delay of a third party.
The Last Word
Ideally, a contingent sale isn’t your friend. It might work out well for you, but it may equally mean significant delays and uncertainty.
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