What does Contingent Mean in Real Estate?CASAPLORERTrusted & Transparent
What You Should Know
- The status of a house is contingent when an offer by the buyer has been accepted, however, there are contingencies that need to be met first before finalizing the sale
- When the contingencies are met, the house listing status changes from “contingent” to “pending”
- A pending house listing means that the parties are ready to close the deal after the documentation and the legal work is processed
- Some of the most common contingencies include: financial, inspection, appraisal, title, home sale, and first right contingency
Contingent vs Pending
In the home buying process, between offers, contingencies, and documentation, the house listing status goes through several stages. You might have encountered the term “contingent” or “pending” when searching for houses, which mainly serve as an indicator of which phase the negotiation with the current potential buyer is at. We will explain the differences between these terms and discuss what they mean about a house’s listing status.
What does contingent mean in real estate?
Contingencies are the terms that have to be fulfilled in order for the sale of a house to go through. When a house is listed as contingent, it means that an offer has been made on the house and the seller has accepted it. However, there are contingencies on the offer, which give the buyer and seller the right to back out of the negotiation, if they are not met. Depending on the type of contingency, they can either protect the buyer or seller. The seller would prefer an offer that has less or no contingencies that protect the buyer and vice versa.
What are some common contingencies?
There are several types of contingencies that you can include in your home offer. Some of the most common ones include:
|Type of Contingency|
|Financial||Buyer has to secure financing for the property.|
|Inspection||Property passes the home inspection with no issues.|
|Appraisal||Property’s market value corresponds to its price.|
|Title||The title of the home is clear, ready to be transferred to the buyer.|
|Home Sale||Buyer gets to sell their current home first.|
|Active - First right||Initial buyer has the right to match other offers.|
This is a contingency that gives the seller the option to opt out of the deal if the buyer cannot get approved of a mortgage. Even when someone has got preapproved for a mortgage, there is still the possibility that they may not qualify when they officially apply, For example, this can happen when something has changed in your financial circumstances since the time you got pre-approved, such as a drop in your credit score. A mortgage pre-approval is still a good asset to have when making an offer on a house as it shows you are a serious buyer who is very likely to secure funding and purchase the house.
A home inspection contingency protects the buyer in the case when the home inspection reveals that the house needs some repairing done. For example, imagine that you have made an offer on the house for a certain price and the seller has accepted that offer. However, the home inspection report reveals problems in the electrical system of the house that pose a safety hazard. You do not find the house worthy of its price anymore, and fortunately, you have an inspection contingency that allows you to walk away from the deal. Another option is to renegotiate with the seller a lower price or have them pay for the repairs needed.
Lenders typically require a home appraisal before they give out a mortgage. The lender may not approve of the loan if the home appraisal reveals that the house is worth less than its price. Even if you find the house worth it because of its location or the neighborhood it is in, the lender may not accept to qualify you for that big of a loan. In some cases, they may qualify you for the mortgage if you are willing to pay the difference upfront.
A title contingency allows the buyer to back out of the deal if there are issues with the home’s title or ownership. It protects the buyer by not obligating them to purchase the house if the title cannot be transferred to them.
Home Sale Contingency
If the buyer needs to sell their current house first before being able to purchase the new one, they can include a home sale contingency clause in their offer. This contingency will give the buyer time before having to purchase the house while still securing the offer. On the other hand, sellers may not like this contingency since they will have to wait until the buyer’s house is sold before closing the sale. On other occasions, sellers may not mind, such as in the case when they themselves are looking for their next house.
Active - First right
If the seller is allowed to show the house to other potential buyers and accept better offers, this contingency gives the initial buyer the right to match the better offer. For example, let’s say that you made an offer on a house and the seller accepted it. However, someone else comes along with a better offer which may be a higher price, fewer contingencies, or anything that makes the offer more attractive. The seller should give you the opportunity to match that offer before they walk out of the deal.
Types of Contingent Listings
Depending on the type of contingency, the seller may or may not be allowed to show the house to other potential buyers after accepting someone’s offer. The types of contingencies can be categorized as:
Contingent - Continue to Show
This type of agreement means that the seller is allowed to continue to show the house to other potential buyers, even after accepting the current buyer’s offer. This typically is the case when an offer contains many contingencies and the seller is looking for something better. If you are interested in a property listed as contingent - continue to show, then you should make an offer on it as the seller is still considering other options.
Contingent - No Show
An offer has been accepted which is highly likely to end in closing, therefore the seller is not showing the property anymore to other buyers. While you can still try making an offer, it will probably not be considered.
Contingent - With Kick-out
In this type of contingency, the seller is allowed to “kick out” the current buyer whose offer they have accepted in the case that a better offer comes along. This means that the current buyer’s offer is at risk.
Contingent - With No Kick-out
The seller cannot accept other offers and “kick out” the current buyer. The only occasion when they can do this is when the current buyer does not fulfill their contingencies.
Short Sale Contingent
A short sale happens when a house is sold for less than the mortgage balance owed on that house. This happens with the permission of the lender that forgives a part of the borrower’s debt. When a house is listed as “Short sale contingent”, it means that there is an offer on the house, however, the seller continues to show the house in case the current buyer walks away from the deal.
A house is listed as “Contingent Probate” when its owner dies and doesn’t leave the property to a person or a number of people. The state then sells the property in probate court.
What does pending mean on a house?
A house listing has the status “pending” when an offer has been made on the house, it has been accepted and all contingencies have been met by both the seller and the buyer. At this phase of the deal, the two parties are completing all the necessary documentation and waiting for the legal work to be processed so the sale can officially close. The house listing is no longer active.
Contingent vs Pending
There are a few key differences between the status contingent of a house and the pending status. The main difference is that the pending status comes after the contingent status. Therefore, if a house is pending, it means that the sale is in its final stages.
Another important difference is that the listing is still active if a house has the contingent status in case the contingencies are not met and the deal falls through. On the other hand, if a house is in the pending status, the listing is no longer active.
|Contingent Status||Pending Status|
|Has an offer been accepted?||Yes||Yes|
|Have the contingencies been met yet?||No||Yes|
|Is the house listing still active?||Yes||No|
|Has the sale officially closed?||No||No|
Types of Pending Listings
There is a lot of room where things may go south during the process of a home sale. That is why even when a house listing status is pending. There is a possibility that the sale may not close. There are different pending states that describe the situation of the house’s sale and make it easier for other potential buyers to understand the specifics of the deal.
Pending - Taking Backups - When something happens in the last stages of the sale, such as a problem with one of the contingencies that were considered met before, the seller may start considering backup offers. This lets the seller have options if the current sale falls through.
Pending - Short Sale - During a short sale, approval is needed by the lender or bank, which makes the closing process lengthy. There is not much the two parties of the negotiation can do in this scenario.
Pending - More than 4 months - It has been more than 4 months since the offer on the house was accepted, and the deal has yet to close. This can happen because of different types of delays in the process of negotiation, documentation, or legal work.
Can you still make an offer on a house that is contingent or pending?
You can make an offer on a house at any stage of the selling process, as long as it is before the sale officially closes. The chances of the seller considering your offer, however, vary according to the stage the negotiations are at. For example, if the house is pending, then the owner may not be allowed to accept any offers, as opposed to when the status of the house is contingent.
If you do plan to make a backup offer on a house, make sure to act strategically. The seller already has an offer they have accepted and would be tempted to walk out of the deal only if something better comes along. Consider the following tips when making a backup offer on a house that is contingent or pending:
Work with an experienced real estate agent
A real estate agent can research and discover the contingencies of the current contract. The agent can also speak to the listing agent and find out in what stage negotiations are in and how the parties feel about the deal. Then the real estate agent can help you prepare a backup offer that would seem appealing to the seller. One way would be to exclude the contingencies that are causing problems in the current negotiation.
Write to the seller
The seller may be more willing to consider and accept your offer if you write a personalized letter explaining why you love the house and what makes it so special to you. Sometimes, besides the monetary aspect of the deal, a seller may also be interested in who is buying their house. This is why adding a personal touch to your backup offer may increase the chances of purchasing the house.
While you may be eager to convince the seller to accept your offer on the house, you wouldn’t want to seem too aggressive. This might push the seller away. However, you should respond in a timely manner when you receive calls or emails from the seller’s side in order to show your commitment.