What Does Contingent Mean When Buying a Home

Updated: Jun 15, 2020

A contingent status for a real estate transaction means that there are certain conditions that must be completed for the home sale to be completed. Contingency's can help protect the buyer or seller and allow the parties to walk away if conditions are not met without the loss of earnest money. It is important to note that although contingencies protect your own interests it may also be a headache for the other party leaving to less leverage. This often occurs with a home sale contingency where buyers don't want to wait and will offer a lower price on the home.

Contract Signing

What is an Appraisal Contingency?

Appraisal contingencies generally occur when the home buyers are using financing to purchase the property. Mortgage lenders will only loan a certain percentage of the appraised value. If you were already struggling with a small down payment you may not qualify for the loan. At this point the home buyer can put down additional money or ask the seller to decrease the price of the home. Since this contingency protects the buyer, if a resolution cannot be made the buyer can leave the process and have the earnest money deposit returned.

What is a Home Inspection Contingency?

Home inspection contingencies are extremely common coming from the buyer. When a home inspector goes through the property and finds defects this brings both parties back to the negotiating table to review them. This protects you from unknown things such as a leaky roof or a cracked sewer main that could cost upwards of tens of thousands of dollars to fix. It is common for the seller to either repair the items or cover some of the closing costs. The seller does however have the option to refuse any of the tasks and the buyer must then decide to continue or walk away from the new home.

What Does Contingent Financing Mean?

Financing contingencies also known as a mortgage contingency is when a home buyer has not received pre-approval for a home mortgage. The buyer now has protected their earnest money if they cannot qualify for a loan.

What is a Home Sale Contingency?

Home Sale Contingencies is when a home buyer needs to sell their current home before purchasing the new home. This type of offer is often not accepted during a hot market as there are generally multiple offers coming in and a home seller would rather go with a sure thing. It is very often that a home seller will put in a kick out clause so they can still accept back up offers while this contingency is in effect. With the kick out clause if a better offer appears they may back out of the previous contract.

What is a Home Buying Contingency?

Home buying contingencies are when a seller adds a contingency clause to the purchase contract that requires them to find a new home before selling their current home. This contingency will likely reduce the number of offers received on the home and can lower the sale price of the home. Although a contingency does protect you, there are other ways to buy a home and sell your home at the same time.

What is a Title Contingency?

When purchasing a home there is a review of the title often by a title company. This ensure the previous ownership are legitimate and checks for unseen easements. Although rare there can be issues that are found that can question the ownership of the property and could leave you with other peoples debts associated with the property. This contingency allows the buyer to leave the home sale.

What is a Home Insurance Contingency?

Home insurance for a property is generally required by the lender and important for the buyer to protect their new home. The property could be in a fire prone area or flood zone that could cause larger than expected insurance costs or some insurances to refuse to cover it if it is deemed too risky.

What is a Right to Assign Contingency?

Some home buyers are wholesalers who will put the home under contract and reassign the contract to a new buyer. They will generally do this for a larger amount and pocket the difference. This generally occurs for off market deals that don't make it to the multiple listing service (MLS).

What are some Other Contingencies?

There can be contingencies written for just about anything you can think of however the ones above cover the majority that occur during a home transaction. If a buyer or seller have specific needs or concerns a contingencies can be put into the contract to ensure they are taken care of. It is important to remember that contingencies will be written with a specific and measurable task. For example after a home inspection contingency it cannot be written for the home to be improved but would instead state that the front door must be replaced. There also needs to be a deadline after a set period of time that holds both parties accountable. This will ensure that the required action is completed and the buying process does not drag on for months.

What Does Contingent or Pending Mean?

When looking at homes on the multiple listing service (MLS) and you see a pending or contingent transaction it means that an offer was made and accepted by other parties. This transaction however is not finalized and will likely contain some of the contingencies outlined above. These contingencies could fall through and be moved back to an active listing.

Can you make an offer on a house that is active contingent?

Many sellers accept backup offers to their home! The seller however cannot back out of the contract unless if one of the current contingencies falls through or if they have a kick out clause.

A smart real estate agent can write contract contingencies to your particular situation to help protect you against unforeseen circumstances.

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