What does contingent status mean in real estate?
When it comes to searching for and eventually buying a home, there are many terms a potential buyer will come across that are used to describe a home’s status. One of the terms prospective buyers will likely start to see is the listing status "contingent."
This term is especially important for buyers to understand, as there are always risks of unexpected issues arising during a home purchase that contingencies or contingency clauses can help prevent. We will break down exactly what contingent status means, the different types of contingencies (i.e. common contingencies), what a contingent offer is, and how home sale contingencies play an important role in a real estate transaction.
What does contingent mean?
Contingent refers to a condition that is normally included in the buyer’s offer on an active listing that must be met before the purchase agreement is complete. Put simply, contingencies are requirements in a real estate contract that allow the buyer or seller to back out of the pending sale if not met.
Contingencies are mainly used as a form of protection for the buyer (or seller) in the home buying process. A home sale contingency helps the potential buyer ensure that they are covered in the event that the transaction goes awry.
Contingent Status vs Pending Status on Real Estate Listings
It is important to note that contingent status is not the same thing as pending status in the real estate market.
Contingent status on the multiple listing service or other real estate websites means that the seller has accepted an offer, but still needs to meet the buyer’s terms and conditions set forth in the sales contract. During this time, the seller or their realtor could show the contingent home to other buyers in the hopes of getting a better offer, but that is not always the case.
Whereas a pending status on a home means that the seller has completed all of the contingency clauses or requirements requested by the buyer, has the earnest money deposit, and is in the final stages of escrow and closing on the home.
Can you make an offer on a contingent home?
There are different types of contingent statuses that you may see in your home search. Some allow buyers to make an offer on an active contingent home, while others do not allow for backup offers to be made.
If the contingent status is the below, then buyers typically cannot make a backup offer on the home:
But, if the contingent status is one of the below, then buyers are allowed to make an offer (hopefully a better offer) on their dream home:
With most contingencies, the seller can’t back out of the sales contract without legal risk, unless the buyer’s contingencies specifically state that they allow this.
In instances like missing a deadline of the kick-out clause or a buyer backing out of the deal and forfeiting their earnest money deposit, sellers may be more inclined to accept backup offers. It is important to do your due diligence when searching for your dream home, as the listing status can tell you a lot about the true state of the home and whether or not it will be a good fit for you.
Types of Contingencies in Real Estate Contracts:
- Financing Contingency: When the sale of the home is contingent on the potential buyer obtaining financing (or a pre-approval) for the purchase - through a mortgage lender or cash, this is also referred to as a mortgage contingency
- Home Inspection Contingency: When a buyer hires a home inspector to find any undisclosed issues and the current homeowner is then responsible for fixing any of the issues that arise from this inspection before an accepted offer. The buyer can usually back out of this without losing their earnest money deposit
- Appraisal Contingency: When a buyer’s offer is contingent on the new home’s appraised value - if the home appraisal comes in below the purchase price, the current buyer is able to either cancel the sales contract or negotiate a lower sales price
- Home Sale Contingency: When the buyer’s purchase of the new home is dependent on the sale of their current home, so that if the potential buyer cannot sell their home within a given time frame, the new home sales contract can be cancelled
- Title Contingency: When there is a question of homeownership on the title search of the new home, the buyer may be add this to protect themselves from a preexisting lien against the home
According to the March 2023 Realtor Confidence Index Survey by the National Association of Realtors, 5% of real estate contracts had their purchase agreement terminated and ~10% of the cancellations were due to contingencies.
Though most accepted offers do turn into actual sales, there is always a degree of uncertainty in a real estate transaction. So, if a home listing is marked as a contingent listing it may still be worth looking at, especially if the listing agent will continue to show it.
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Aalto, Inc is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.