Contingent Real Estate Listings Are Common
Real Estate agents always get asked what contingent means in real estate sites.
When checking online real estate listings, you might encounter phrases you don’t recognize. One such phrase is “contingent,” but what is a contingent sale, and how will it affect your property transaction?
Realtors often assume that consumers have a firm grasp of all the real estate terms we do, but that is rarely the case. A home buyer or seller often will have no idea of the meaning of contingent.
It would not be unusual to see a listing status you are unfamiliar with in a listing when you have not bought or sold for a while. Before going out house hunting, it is essential to understand their definitions. From experience, many don’t know the statuses that well.
By the time you’re done reading, you’ll have everything you need to know about the meaning of conditional in a real estate transaction.
Contingent real estate is commonplace, so buyers and sellers should know the basics.
What Contingent Means in Real Estate
Many consumers ask, what does contingent mean?” The contingent definition is that the seller has accepted a real estate contract with contingencies. Certain contingencies must be met for the purchase agreement to be satisfied.
A contingent offer is widespread in most sales. However, buyers often leave out common contingencies to sweeten their proposal in a hot real estate market.
Doing so will often increase the odds of winning a bidding war. A contingent offer is far less appealing to a seller than one without contingencies.
The fewer contingencies in a sales contract, the better, as it increases the odds of the sale. Seller-accepted offer contingencies happen far more frequently in buyer’s or balanced markets.
Contingent vs. Pending Listing Status
Sometimes, a real estate agent might change the listing status to pending in the multiple listing service with open subject to clauses that must be met.
For example, the real estate contract might have a financing contingency for the buyer to procure a loan from a mortgage lender. A listing agent may feel confident enough that the prospective buyers will have no problem satisfying the loan contingency.
So, instead of changing the status to conditional, they will mark it as pending in the multiple listing service (MLS). In some real estate markets, a contingent home might have its days on the market continue to increase as if it were still active for sale.
Instead of the market time continuing to grow, a seller’s agent may decide their seller client would be better served by having the status be pending. See contingent vs pending for an in-depth explanation.
The bottom line is that many things can get in the way of closing with contingent homes. Some contingencies require the buyer to sell their home or a period that lets the buyer do their real estate due diligence.
It is not uncommon at all for home buyers to do extensive research on the history of a property before signing the final paperwork. Part of the home-buying process is proper research.
Whatever the contingencies, they can all lead to the sale failing. Nobody likes surprises but they do happen.
What Does Active-Contingent Indicate?
Another typical question buyers and sellers have is what active under contract means. The active contingent meaning is pretty straightforward.
Active contingent means the same thing as “contingent.” A seller has accepted a buyer’s offer, and the property is technically off the market.
The owner cannot accept a better offer from another buyer unless the original buyer does not proceed with the sale. Agents also refer to this as active under contract. With contingent deals, it is certainly possible that the property will continue to be shown.
A buyer’s agent can check on the listing status changes with the listing agent. Can you put an offer on a house that is contingent? Yes, you can!
If circumstances dictate, a buyer may decide they would like to write a backup offer, which we will discuss shortly.
What Buyers Need to Know With a Contingent House Listing
Buyers need to understand what contingent signifies in a listing.
There can be many different types of contingencies that could stop the house from getting to the closing.
Not all contingencies are equal regarding the likelihood of them stopping the sale. So, you need to know the contingencies that apply to a home you want.
When the seller has accepted an offer from a buyer, a contract will be signed, and this contains typical contingencies that need to be completed by both parties. These dependent clauses allow buyers to back out of the deal.
The seller can’t accept another offer after signing the contract, but a new buyer can step in if the sale falls apart.
The seller can accept backup offers while the home is listed as “subject to” conditions.
A Contingent Offer Could Fall Through
A contingent sale could fall apart for many reasons. One of these could happen if the buyer fails to get the home loan they expect. Usually, buyers will get a mortgage preapproval letter from their lender confirming they can get the loan they need to buy the home.
However, if the buyer hasn’t been sincere and accurate with the details given to the lender, their preapproval letter is worthless. The pre-approval note doesn’t guarantee they will be approved for the mortgage they want, and some home purchases fail.
Even if the borrower has been accurate with the information provided to the lender, there can be problems. If their financial situation has changed since getting preapproval, like their credit score changing for the worse, their mortgage application can be rejected.
Perhaps they have applied for other lending or missed a bill payment. The many ways to harm your credit score could lead to a mortgage application being denied. At that point, a borrower may need to change gears and get a bad credit mortgage. A seller might not be willing to grant them a financial contingency extension.
Changes in the interest rates can also create problems for borrowers. Low-interest rates make it easier to qualify for a home loan. But if rates rise, it can lead to increased contingencies not being met.
Can You Still Make an Offer on a Contingent House?
The contingent sale phase typically allows other potential buyers to make offers. The reason for this is that the sale is still considered active. There is still a possibility of the current buyer backing out of the deal or other things going wrong, leaving the seller looking for a new purchaser.
Often, the buyer will have a contingency that requires them to sell their current home before purchasing the new property. If the current buyer struggles to sell their home, the seller will become increasingly interested in other potential buyers and the offers they are willing to provide.
If a buyer does manage to sell their home quickly, the contingency will be met. This will mean that the sale can move towards closing, and the listing changes from contingent to pending.
What is a Kick-Out Clause
If the buyer cannot sell their home, and the seller has a second offer on the table, they have another option. The seller can decide to contact the first buyer and give them a certain period to either remove the contingency or meet its requirements.
It is referred to as a kick-out clause. In some circles, it can also be called a right of first refusal.
This could be as little as a day or two for the buyer to continue purchasing, even though they might not have sold their current home.
This will leave the current buyer in a challenging position if they don’t have the finances without selling their existing property. If the first buyer cannot continue with their purchase, the seller can take up the offer from the second buyer.
When you like a home with this contingent listing type, you can contact your real estate agent to place an offer. If your offer is attractive to the seller, they might consider moving forward with you.
It will mean that the first buyer will be forced to give up their contingencies and move the listing to pending, or you’ll get to buy the home.
What is a Backup Offer?
A backup offer is when a buyer writes a contract on a home they wish to purchase that already has an accepted offer. If the current contract falls apart, the holder of the backup offer can buy a home they want.
Many active contingent or active under-contract homes fall through. Writing a backup offer when uncertain about a transaction being completed is a good idea.
Sellers need to note they cannot accept a higher offer from a second buyer unless the first contingent contract falls through.
With contingent real estate returning on the market occasionally, backup offers put you in a better position to land the home you want.
What Does Pending Denote in a Property Listing?
Most of the time, a listing will change from contingent to pending when the contingencies have been met. The buyer would have included these contingencies when they made an offer, and the seller would have agreed and signed the contract.
With the contingencies taken care of, the contract is executed, and all that is left to do is the paperwork and closing. This is the time when a listing might have a pending listing status. While the contingent position allows other buyers to make bids, the change to pending status ends that opportunity.
That is the most significant difference between pending and contingent sales.
See here for a comprehensive explanation of what pending indicates in real estate. When homes have gone pending, contingency removal has occured. The sale is nearing its conclusion.
How Frequently Do Contingent Offers Fail?
The time it takes to close on a home varies considerably across the country, but the average is around 50 days. The closing period’s time can frequently change based on supply and demand.
In that time frame, there are quite a few reasons why an offer with contingencies could fall apart.
Around three-quarters of offers are estimated to contain contingencies, with about 10% of purchase contracts being terminated. So, if you are interested in buying a home that has changed to contingent, there’s only a tiny chance of the first buyer not purchasing.
A Buyer’s Offer Can Include Quite a Few Different Contingencies:
Most property sales go through several stages before reaching a conclusion.
Some of the most common real estate contingencies include the following:
Home Inspection Contingency
A home inspection is a common contingency in most contracts. The inspection report will detail any significant problems discovered by the home inspector.
If the home inspector discovers severe issues with the home, this contingency can ensure they get fixed. It can also lead to the price being reduced or even allow the buyer to walk away. A discussion will ensue when there are a lot of repairs needed.
The buyer will have options when the condition is poor.
Loan Contingency
A mortgage condition is one of the most standard elements in a contract. In the contract it will state mortgage contingency. Loans are commonplace because most buyers can’t pay cash. Lenders must provide a mortgage commitment before contingency removal can occur.
Buyers and lenders have an obligation to let the seller’s side know they have received loan approval.
Appraisal Contingency
You will occasionally see a home appraisal satisfactory to a buyer in an offer-to-purchase agreement. The clause will read that the sale is contingent on the appraised value being at least as much as the purchase price.
A home appraisal contingency ensures lenders aren’t loaning more money than the home is worth. Sometimes, the property does not appraise for the purchase price.
If the buyer has offered to pay more than the property’s fair market value, the lender won’t want to loan more than the appraisal value. They don’t want to risk losing money should the borrower not keep up with mortgage payments.
The homebuyer can increase their down payment amount to meet the lender’s loan-to-value requirement, negotiate a lower price, or walk away.
Home Sale Contingency
While selling your home before buying another one is far more straightforward, that is not always possible. There is always the possibility of going wrong and delays leading to difficulty financing your new home purchase.
The home sale contingency gives buyers some protection and time to sell their homes. If their home doesn’t sell, they can withdraw from the deal with their earnest money deposit returned.
Home sale contingencies are not looked at favorably by many Realtors and home sellers, especially in strong seller’s markets. Nobody wants the buyer’s home sale to interfere with a deal. Unfortunately, that is often the case with this type of contingency.
The home seller will often balk at agreeing to this contingency clause. In most cases, a contingency removal on a clause like this is necessary to get an offer accepted. One of the best tips to nail your dream home is to never add this clause.
Title Contingency
For a final sale to be completed, there must be a clear title.
If the property doesn’t have a clean title, future claims can be made over ownership. A title contingency will protect the buyer should there be issues like a mortgage lien or encroachment dispute. The title report will show problems such as liens and other defects.
If a title search uncovers something wrong, continuing the purchase can be a risk for the buyer. One of the roles of a title company is to seek and find these kinds of significant issues. It is part of the services they provide before the completion of properties being purchased.
Short Sale Approval
A short sale is a specific situation where a home seller needs approval from their lender to sell the property. With a short sale, the lender lets the transaction occur by receiving less than what’s owed on the mortgage.
The home’s sale price is less than the current mortgage balance in a short sale. The sales contract will often read “subject to short sale approval by the lender.”
A short sale is a contingent property with much higher odds of failure than a traditional sale.
Common FAQs on Conditional Sales
Here are a few of the most common questions a homeowner or buyer will have about contingent sales.
Do Sellers Have to Agree to Contingencies?
When selling your home, you don’t have to agree to contingencies if you don’t want to. It will be in your best interests most of the time to agree. The current housing market will dictate the options.
If you don’t want to deal with contingencies, finding a buyer will be more challenging, and you will get fewer offers. Unless you are in a very hot sellers’ market, you’ll probably need to accept a few contingencies to sell your home.
Contingent real estate is more the norm than the exception.
What Happens When a House Changes from an Active to a Contingent Status?
If a home you are interested in changes from active to contingent, it means that the seller has an offer with contingencies that need to be fulfilled. While this is still technically an active listing, and you can typically continue to make offers, there is a good chance that you won’t buy the home.
Regardless of the status change, you might decide it is worth making an offer, but you shouldn’t pin your hopes on success.
What Does Contingent Mean on Zillow and Realtor.com?
When looking at listings online, you’re bound to see the contingent listing status on Realtor.com and Zillow. Many people wonder what contingent means on Realtor.com and Zillow.
A listing labeled as contingent on these sites indicates a contract between the buyer and seller has been executed. For the contingent upon status to change on Realtor.com and Zillow, the listing agent would need to change the status to pending.
Closing Thoughts The Meaning of Contingent
Buying a home isn’t easy, but it is stressful. Contingencies can help remove some of the risks when purchasing a home, though they can seem to get in the way when you’re trying to sell.
Whichever side of the home-buying process you are on, you need to understand contingencies and how they will affect you.
Hopefully, you now have a much better understanding of what contingent denotes in real estate.
About the Author: The above Real Estate information on the meaning of contingent in real estate was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
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