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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.