What Does Contingent Mean in Real Estate?
The general definition of the word contingent is "subject to chance." That means that any one of a variable set of factors can change the outcome of a particular situation. For example, a "contingent" job offer depends on the results of a drug test or background check. The employer may rescind its original job offer if the test results reveal unfavorable information.
In law, a "contingent" charge for services can change based on the outcome of a case. For example, an attorney might not win a case for a personal injury settlement. Such an attorney would not charge the client for services rendered in that case. On the other hand, the attorney may take a percentage of the settlement as payment for representation if he wins the case.
The term "contingent" is also used in real estate. Here is some information about what it means in a situation where an individual is trying to buy a house. Read through it so that you understand the dynamics of home sales and are never caught off guard by a contingent situation.
It's normal for you to want to know, "What Does Contingent Mean in Real Estate?" The answer is quite simple. Contingent means the same thing in real estate that it does in other areas. It means that someone has made an offer on a home, and the seller has accepted the offer. However, the sale will not be completed unless the buyer or seller meets certain criteria.
What Contingent Means for a Buyer
You may want to know, "What does contingent mean in real estate for a buyer?" if you're looking to buy property. It means that your sale will not be complete until you or the seller meet some required conditions. The deal could still fall through because of the failure of you or the other party to meet those criteria.
We'll talk about the criteria a little later. For now, we just want you to know where you stand. A contingent deal is not solidified. Therefore, you should remain neutral about the purchase until it gets further along in the process.
What Contingent Means to a Seller
You may also wonder, "What does contingent mean in real estate as a seller?" if you're the person who wants to sell your home. For you, it means that you can't count on the sale closing just yet. In many cases, you'll still be able to accept new offers or backup offers from other prospective buyers. A home sale deal isn't finished until everyone meets all requirements and every dot on the legal line is signed.
You should remain neutral about the sale if you are the seller, and you should continue to take offers and gather leads just in case the home purchase does not go through. The home you desire to sell will still be on the market while it's contingent in most situations. Therefore, you can continue to accept offers on the property until your first deal solidifies.
Reasons a Home Might Be Contingent
There is a deeper answer to your question of, "What does contingent mean in real estate?" A home might be contingent for a number of reasons, up to and including:
Appraisal Contingency
A mortgage company will want to have an appraisal performed on any home it's thinking about lending a person the money to buy. It makes sense to the mortgage company because they'll want to ensure that the home's value is equal to or greater than the purchase price of the home. They will use a third-party appraisal company in most cases. That company will then assess the home and submit an appraisal amount. The mortgage company may ask the prospective homebuyer to secure additional funding or collateral to purchase the home. Failure of the buyer to do so may result in denial of the mortgage and thus void the sale.
Home Sale Contingency
In some cases, a prospective home buyer is counting on the sale of his or her existing property to purchase another property. That happens in many cases where the buyer is looking to downgrade for an upcoming retirement. Unfortunately, something might go wrong in the process of selling that home. In that case, the new deal will be voided because the buyer will not have the funds to make the purchase.
Home Inspection Contingency
A home sale may be contingent upon the successful completion of a home inspection. A professional inspector will come and review the home for issues that need to be repaired. The buyer will have the right to renegotiate the sale if the inspection uncovers problems that weren't revealed in the original deal. The buyer could ask that the seller make the necessary repairs before he or she solidifies the sale. The deal will be voided if the buyer and seller can't reach an agreement about the fixes.
Mortgage Contingency
Many homes are contingent because of their status on a mortgage application. Many prospective home buyers secure a prequalification before they look for homes. However, that's not always the case in a deal. Sometimes, buyers don't apply for mortgages until late in the process, and the sales are contingent upon the prospective buyers gaining approval for such mortgages. These deals will become null and voice if the prospective buyers cannot gain approval for mortgages that will allow them to buy the homes.
The Difference Between Contingent and Pending
You might wonder, "What Does contingent mean in real estate compared to a pending situation?" That, too, is a normal question to ask.
Pending Sale
A pending sale is a sale that has met all qualifying criteria and has moved on to the point of near completion. The only thing left for the buyer and seller to do at this point is to complete the legal processes.
Contingent Sale
A contingent sale has yet to meet certain criteria that are mandatory for the sale. Thus, it is not near the stage of completion and can still fall through. A contingent home may still be listed as "for sale." People can still make offers on the property until it enters the pending stage.
Contingent vs. Pending vs. Under Contract
As we mentioned before, the contingent home sale's advancement to the pending stage depends on whether the buyer or seller meets certain criteria.
Pending Home Sale
A pending home sale is one that has passed all the contingencies, and the buyer and seller have both agreed to the terms of the sale. A pending home is very close to completion. It could still fall through, too, but it's highly unlikely at this point.
Sales under contract
Sales under contract have a high possibility of concluding. However, unforeseen situations and events could cause them to fall through.
Different Types of Contingency Statuses
A home may be listed as contingent, and the organization that lists it may refer to various contingency statutes. These contingency statuses provide a little bit of information about the situation of a sale. These are some of the contingency statuses that one might see in a real estate listing:
Contingent with kick-out
A contingency with kick-out means that the buyer only has a limited amount of time to meet the contingencies. The seller has the right to continue to accept offers and additional bids during this time period. If the original buyer doesn't meet the contingencies, the seller can proceed full-blast with another sale.
Contingent with no kick-out
In this type of contingency, the buyer does not have a time limit on meeting the criteria. Additionally, the seller cannot accept any other bids or offers during this time.
Contingent No Show
This type of contingency is one where the seller commits to taking the home off the market. There will be no showings of the home, and it will be taken out of the listings, as well. Once the buyer meets all the contingencies, the home will change status and will be in the pending category.
Contingent Continue to Show
In this type of contingency status, the seller has accepted an offer, but the buyer still needs to meet numerous contingencies. The seller will still allow prospects to look at the home and submit offers.
There are other contingency statuses that you might see when you're on the market for a home. You can speak to a reputable real estate specialist about other contingency categories and statuses.
What to Do if You're Involved in a Contingent Real Estate Venture
Keep your options open if you're a seller in the middle of a contingent deal. Continue to accept backup offers in situations where it's allowable and acceptable. If you are a buyer, you may want to look at more than just a few houses to buy. You might want to look at some homes with lower prices, for example. That way, you can try again if the home you're trying to buy falls through. Don't get your hopes up high about a home purchase until you know beyond a shadow of a doubt that the home will be yours. Wait until the closing day to celebrate.
Contact Us if You Need Help
Now you understand what the term contingent means in a real estate situation. You also understand why your home purchase might be contingent and what you can do if that's the case. You can reach out to us for any additional information about real estate that you may need.
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