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For anyone looking to buy a home, there are many terms you’ll need to familiarize yourself with. One of these terms is “contingent,” You may see it on many real estate listings or when it comes time to write your offer on a home.
Here, we break down everything you need to know about contingent offers and how you can navigate them as a homebuyer. As you’ll soon see, they’re pretty straightforward once you pass the legalese language.
What Does Contingent Mean in Real Estate?What Does Contingent Mean in Real Estate?
In the simplest terms, contingencies are scenarios that must happen (or not happen) for a real estate transaction to move forward. Their usual purpose is to protect the buyer if something goes wrong, and they must exit the purchase contract.
For example, a mortgage contingency is one of the most common contingencies in a real estate deal. This stipulates that the purchase agreement is contingent on the buyer’s approval for their mortgage. If they fail to obtain financing approval, they can drop out of the deal and get their deposit back with minimal fuss. There are at least a dozen types of contingencies that work like this.
While contingencies are typically something a buyer will add to a deal, there are also cases where a seller might want to add contingencies. For instance, let’s say you’re looking to buy a new home, but you must sell your current one to raise the necessary funds. A home sale contingency would make the purchasing transaction contingent on selling your existing home by a specific date. The purchasing transaction moves forward if the sale happens by the specified date. But the purchase contract is canceled if the sale doesn’t happen.
The critical thing buyers (and sellers) need to remember about contingencies is that while they provide important protections, they risk making a deal more complicated, less attractive to sellers, and potentially less likely to close. Many buyers, especially in a fast-moving seller’s market, will try to make their offers more enticing by including no contingencies. This can be a risky move that could cost you your deposit if something goes wrong. If you are considering making a non-contingent offer, first talk it out with your real estate attorney and buyer’s agent so that you understand the risks.
What Does Contingent Mean on a Real Estate Listing?What Does Contingent Mean on a Real Estate Listing?
As mentioned, contingencies are usually something that the buyer makes. However, sellers can also add them to a listing description. Keep an eye out for the following types of contingent listings:
Contingent Continue to Show (CCS)Contingent Continue to Show (CCS)
The seller has accepted an offer, but multiple contingencies are attached. The seller is currently trying to work out the terms of these contingencies with the buyer, and in the meantime, they are still open to hearing other offers. For sellers in a seller’s market, CCS can be very low risk and may bring in the type of offer they’re looking for. But for buyers in a seller’s market, it’s best not to get your hopes up too much when making an offer on a CCS listing. They can still be worthwhile if you’re prepared to make a similar offer with fewer contingencies.
Contingent No ShowContingent No Show
There’s a firm offer already on the table, and it will likely close. The seller is no longer interested in showing the home to other prospective buyers.
Contingent With Kick-OutContingent With Kick-Out
The kick-out clause means the seller is open to new offers that will “kick out” the current bid in favor of something better. If you wish to make an offer on a listing with this clause attached, it’s best to go in strong with the best offer you can make.
Contingent With No Kick-OutContingent With No Kick-Out
A No Kick-Out clause means the seller is locked into a deal and cannot switch to a different buyer unless the current one fails to meet specific terms of the agreement. This type of clause is suitable for the buyer but not so good for the seller, who can’t consider other offers. If you see a listing with a No-Kick-Out clause attached, it’s best to look elsewhere, as the current buyer holds most of the cards.
Contingent Short SaleContingent Short Sale
The seller has an accepted offer and is willing to sell the home for less than what they owe to their mortgage lender. Because the lender is involved, a short sale can take a while. In the meantime, the seller is open to other offers as a backup in case the current one falls through.
Contingent ProbateContingent Probate
Probate is a legal process in which the courts attempt to settle the assets of someone who has died. Similar to short-sale contingent listings, the sellers already have an accepted offer but are open to receiving backup offers.
The Different Types of ContingenciesThe Different Types of Contingencies
Both parties can include contingencies to protect themselves from the unexpected in a real estate transaction. Here are some of the most common ones:
Appraisal ContingencyAppraisal Contingency
Buyers who need financing to close the deal will almost always include an appraisal contingency. This states that the lender must appraise the home’s market value before approving the mortgage. If the appraisal is lower than the loan amount, the buyer must either make up the difference, renegotiate the sales price, or back out of the deal.
Home Inspection ContingencyHome Inspection Contingency
Like the above, a home inspection contingency allows the buyer to assess the home’s condition accurately before proceeding with the deal. A professional home inspector, hired and paid for by the buyer, will conduct the inspection. If they find any issues with the home, the buyer may renegotiate for closing credits or a lower sales price. If the seller can’t reach a revised agreement, the buyer is free to walk. Homes listed “as-is” mean the buyer is free to conduct an inspection, but they may be unable to request repairs or ask for closing credits.
Mortgage ContingencyMortgage Contingency
Even when a buyer has been preapproved for a mortgage, there’s always a chance that the underwriting process will uncover something that stops the loan. Therefore, many buyers will include a mortgage contingency to safeguard against this possibility. When activated, a mortgage contingency allows the buyer to exit a deal without penalty.
Home Sale ContingencyHome Sale Contingency
Buyers who own a home but must sell it to raise funds for their new purchase may include a home sale contingency. This means the new purchase can only go ahead if they can successfully sell their current home by a specified date. No sale means no closing on the new home.
New Housing ContingencyNew Housing Contingency
Sellers also need a new place to live once they sell their come. A new housing contingency allows them to back out of the sale if they haven’t found a new home by a specific date.
Title ContingencyTitle Contingency
The title search is vital to every buyer’s due diligence. Including this contingency allows a buyer to back out of a deal if they find the seller doesn’t have a clear title on the home. Typically, this is a minor issue that can be resolved before closing.
What’s the Difference Between “Contingent” and “Pending”?What’s the Difference Between “Contingent” and “Pending”?
The terms “contingent” and “pending” have similar statuses, but there are significant differences regarding real estate. Try not to confuse these terms when looking at a listing:
Active ContingentActive Contingent
If you see a listing in active contingent status, you may still be able to make an offer depending on which contingencies are in place. The seller has an accepted offer, but some contingencies are still unmet. Once these contingencies have been met, the deal will become pending.
PendingPending
Homes in the pending phase are very close to closing. All left is for a few documents to be completed and processed before the closing can proceed. Therefore, it’s usually not worth looking at pending listings. But if you’re determined to get that specific property, you can ask your agent to make some inquiries. Just don’t count too much on anything coming from this.
How Often Do Contingent Offers Fall Through?How Often Do Contingent Offers Fall Through?
Not very often, but it does happen. According to the National Association of Realtors, only about 5% of contingent offers fall through. This usually occurs because the buyer couldn’t secure financing, the home’s appraisal was too low, or the home inspection found issues that couldn’t be resolved. Most contingency issues can be resolved within 24 hours, depending on the type of contingency and how committed both parties are to close the deal.
Final ThoughtsFinal Thoughts
When looking through contingent home listings, please work with your buyer’s agent to better understand the contingencies and whether it’s worth making an offer. Sometimes a contingent deal can be worth pursuing, while it’s better to look elsewhere other times.
When including your contingencies, remember that the more you add, the more you increase the odds of your offer not being accepted, or the deal may fall through. Some contingencies, such as the mortgage and home inspection contingency, are highly recommended. Not including these can put you in a tough spot if something goes wrong.