What Does Contingent Mean for a House? 5 Types of Contingencies
If you’re selling or buying a home, you may hear the word “contingent” come up during the selling process. Typically, this means that the house’s seller has accepted the offer. However, the listing will remain active until certain conditions are met. The buyer must pay for or accept these conditions before the house will be moved into pending.
Once these contingencies are met, the house moves to pending. This label means that the contingencies were met and accepted. Now, the payment and sale have to process.
Buyers can also put contingencies on their offer. For instance, many buyers choose to have an inspection contingency. During these contingencies, the buyer makes a payment but holds the payment until an inspection. The payment is released if the home passes the inspection without finding severe issues. However, if issues are found, the buyer may negotiate for the price down further to account for this or pass on the house altogether.
Other contingencies include the financing contingency, which occurs when the buyer needs to ensure that they have financing for the offer. Appraisal contingencies are required for some types of loans. The buyer will need to ensure that the house is worth a certain amount before they can make the purchase.
Different contingencies take different amounts of time to clear. Once the agents are satisfied with the contingencies, the sale will move to pending.
The 5 Types of Contingencies
There are several different types of contingencies. Each one means something a little bit different. While they are all contingencies, they can mean a wide variety of things. Therefore, it’s vital to understand all the different types.
1. Continue to Show
When a property is contingent but “continues to show,” it means that the seller will continue to show the home and accept new offers. Often, this occurs when the seller isn’t confident that the buyer is serious. Often, this occurs when there are many conditions to consider. The seller can accept another offer during this period, so it’s important to move fast if you’re the potential buyer.
To do this, you’ll need to work through the various contingencies quickly. Often, the easiest way to show the buyer you’re serious is to get approved for a home loan. You can also place a considerable deposit on the house, which the buyer can hold until the contingencies are met.
There may be other things you can do to strengthen your home offer. Speak with your agent to find out what you can do to move the offer forward before the seller accepts another offer.
2. No Show
The seller will not show the house or accept new offers during this contingency. Usually, this means that the seller is confident the contingencies will be met at some point. Often, this occurs whenever the contingencies are easy to solve or the buyer has already taken steps to meet the contingencies.
3. Kick-Out Clauses
Furthermore, contingencies can have “kick-out” clauses or not. Simply put, these clauses are deadlines that the contingencies must be met. They can be placed on either party, though they are usually placed on the seller.
Without a deadline, the sale can be contingent for a long time. Therefore, if there is doubt about whether or not the other party will move towards completing the sale, a kick-out clause may be added.
During these contingencies, the seller will accept less money than what is left on the mortgage. However, usually, these sales take a very long time. It can take months for these sales to complete, so be prepared to wait awhile.
The seller will no longer accept new offers when this sale contingency is placed. However, this contingency can take a while to clear. It’s more of a waiting game at this point, in any case.
5. Contingent Probate
This contingency occurs when the home is sold due to the owner’s death. These sales tend to take a bit longer, as more paperwork is involved for the seller. However, the house usually isn’t being shown anymore during these periods, and new offers aren’t being accepted.
Is It Better for a House to be Contingent or Pending?
Contingent status occurs before pending status. Therefore, pending houses are usually closer to being sold than contingent houses. Contingent status means some uncompleted business is involved in the sale of the home. Sometimes, the seller will still accept offers. Contingent sales don’t always go through, as the contingencies may never be met.
However, pending sales no longer have any contingencies. Instead, the sale is just processing. Money is moving around, and paperwork is getting signed. The home is very close to being sold, but there is still some paperwork to complete. Usually, this process doesn’t take very long.
However, some loan types are notoriously long to process. Therefore, you may still be stuck for a few months before the sale is finally processed.
Can a Seller Back Out of a Contingent Offer?
Yes. The seller can back out of a contingent offer at any time. If the contingencies are not met, the seller can back out at any point. However, backing out is much more difficult once the contingencies are met and the home moves to pending.
In some cases, the seller may continue to show the home and accept new offers while the home is in contingent status. Therefore, it is vital that the buyer moves quickly and clears up any contingencies on their end.
With that said, backing out of them can be a bit complicated. These agreements are legally binding. Therefore, the seller cannot back out just because they want to. Certain conditions must be met to allow the seller to back out.
How Do You Beat a Contingent Offer?
You can make an offer on a home while another offer is contingent. However, not all sellers will want to back out of their current offer. However, they absolutely can if a better option comes along or they are not confident about the current offer.
Sometimes, it becomes obvious that the contingencies will not be met. At this point, the buyer may be able to beat the other offer easily.
Ultimately, it depends on what’s going on with the house. If the home is still being shown, then there is a good chance that the seller isn’t confident about the current buyer.
Most homes go through a contingency period before being sold. This is one of the first phases of an offer going through. Typically, homes have at least one contingency, which is a requirement that must be met on either side. These contingencies can sometimes be big hurdles (like getting approved for a home loan) or “usual” hurdles like a home inspection.
Sometimes, owners can accept other offers while their home is contingent. Often, it depends on their contingencies, how long they’ve waited for the requirements to be met, and how confident they are that the sale will move forward. While most contingencies move forward quickly, others may sit for a while, especially if the buyer or seller isn’t very serious.
Therefore, contingencies don’t mean that the home is absolutely spoken for. However, they are the first phase of the selling process.
- Related Read: WHAT DOES PENDING MEAN IN REAL ESTATE?
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