What Does Contingent Status Mean in Real Estate?

The Meaning Of Contingent Explained

There are more sale statues online than you might expect, especially if you’re a first-time buyer. These sale status include some of the ones we all know, such as “for sale” and “sold.”

Though you may have come across other common statuses such as “pending or contingent” while looking at properties online, these sale statuses, just like those you know, indicate the stage of the sale process the property is in.

It is vital that you understand what they mean to identify properties that may be available for purchase.

Today, we want to solely focus on what it means when a property is marked with a “contingent” indicator so that you can understand the real estate market much better in the future. By the time your done reading, you’ll have a firm grasp of the definition of contingent in real estate and how it differs from “pending” status.

Buyers and sellers ask all the time, what does contingent mean? By the time you’re done reading, you’ll have a firm grasp of this status in home sales.

There are nuances between pending vs. contingent that all buyers and sellers should understand.

What Does Contingent Mean In Real Estate Sales?

A contingent status on a property means that a homeowner has accepted an offer from a buyer who comes with some contingencies. Contingencies are conditions that either the buyer or the seller must meet for the sale to go through as expected; this can be any sort of conditions that are seen fit, set up to protect both parties.

For example, a buyer may place an offer on the home, but the offer relies on them selling their current home first before the real estate is seen as fully “sold.”

This is just one of many reasons why a piece of real estate is marked as contingent and may eventually fall through.

What Are Some Of The Most Common Contingencies In Real Estate Contracts?

When buying or selling a home, there are some typical real estate contingencies that you should be familiar with. These contingencies are considered normal or commonplace. Some of them are as follows:

• A home inspection contingency – during a given time period (typically 7-10 days), the buyer is allowed to check out the property for any structural, mechanical, or other safety issues. If there are significant problems found during a home inspection, the buyer can terminate the sale with appropriate notice. The home inspection is a significant hurdle to clear and why real estate agents put so much emphasis on preparing for one. A home inspection is the #1 reason home sales do not stay together.
• A mortgage contingency clause – most buyers don’t have the luxury of purchasing a house with cash. They will need to procure financing from a lender. The mortgage contingency gives them a specified amount of time to get a loan for a certain amount of money. If a buyer cannot procure financing, the clause allows them to escape the sale without losing their deposit as long as proper notice is given by the specified contingency date.
• Home sale contingencies – as mentioned previously, it is possible you could see a buyer asking for a clause that states that in order to proceed with the purchase, they must have sold their home by a specified date. A home sale contingency is rarer and often not acceptable in strong seller’s real estate markets.
• Miscellaneous contingencies – real estate contracts can have any number of obscure contingencies that must be met by one of the parties for the transaction to take place.

What To Expect From A Home That Is Labeled Contingent

As discussed previously, there are different types of contingencies in real estate. Each one comes with different obligations and requirements that need to be met before the property is officially sold.

The most common contingency which you can expect when a property is labeled as such will usually have to do with the mortgage approval process a buyer is going through, which they may not be successful with.

This can happen when the buyer lies about their assets or their total income, though with interest rates so low most people are able to find ways to qualify for the purchase of the property. However, when the market turns and interest rates begin to rise, you will see a lot more contingency contracts fall through because of this.

Other offers can also be accepted as back-up offers when the home is marked as a contingent, as a way of increasing the likeness of the seller being able to sell the property.

Though we’ll get into more of that in the next couple of paragraphs.

Can You Put An Offer On A House That Is Contingent?

Yes, buyers can put offers in on homes where there is a contingency, but a seller cannot just unilaterally accept a second offer without the first sale they agreed to falling through first. Contracts in real estate are legal and binding.

What About Backup Offers?

Almost all contingent listing will allow other buyers to put offers in for the property, as contingency deals are still technically active on the market and can fall through at any time (as discussed previously)A a seller would accept other offers so that they can ensure that they have a buyer for a property, regardless of the current buyer’s contingency terms work out or not. However, the purchaser with a backup offer would not be able to move forward without the first buyer’s contract being terminated.

Let’s say, for example, a contingency agreement relies on the buyer selling their own property first. If everything goes well with the first buyer and they can sell their home to purchase the new property from the seller, the contingent status on the property will change from contingent to pending. Everything will move forward as planned.

If, however, the first sale does not go through, a second buyer will be in a position to move forward.

What Is A Kick-out Clause?

A kick-out clause is another name for a right of first refusal. With the right of first refusal, a buyer is typically not able to move forward with a purchase at the moment. Usually, the reason is they need to sell their current home.

A right of first refusal allows them to buy a home if another buyer comes along with interest as well. The first buyer would be in the pole position to say whether they are moving forward or not.

Usually, a right of first refusal or kick-out clause gives a buyer 24-48 hours to make a decision.

The initial buyer will also have the opportunity to remove the contingency and instead buy the home, even if the buyer’s current home has not been sold yet. If the initial buyer is unable to do this, the house seller can contact the second buyer and move forward with them instead.

So if you see a listing with a contingency status that you like, get in touch with your real estate agent have them place an offer on the home. If the seller likes your offer, they will force the current buyer to move forward without the contingencies in place or make them free up the home so you can buy it instead.

What’s The Difference Between Contingent vs. Pending?

In both pending and contingent statuses, a seller has accepted an offer from a buyer. In many states, you have a choice to label your home in MLS as either pending or contingent. Many agents will mark homes as pending even if there are open contingencies. In fact, I am one of them. There is a reason for this that if you’re selling a home, you should understand – when you mark a home under agreement, your days on the market stop in MLS. When you mark a home as contingent, the days on the market continue to accrue.

So, if the sale falls through at a later date, it will look like the home has been on the market for longer than it really has been. This can be a disadvantage for a seller as days on the market affect how a buyer sees a property. In hot seller’s markets, homes with high days on the market don’t look appealing to buyers.

Final Thoughts On The Meaning Of Contingent

Understanding what contingent means is important for both buyers and sellers as the status can affect your decision making. Hopefully, after reading, you now have a strong grasp of the definition of contingent in real estate sales.

About the author: The above article on “What Does Contingent Status Mean in Real Estate?” was written by Bill Gassett. Bill has been working in the real estate industry for the past thirty-three years. He works for RE/MAX Executive Realty in Hopkinton Massachusetts. Bill loves providing trustworthy information to buyers, sellers, and fellow real estate agents to make the best possible decisions. His writing has been featured on RIS Media, National Association of Realtors, Inman News, Placester, Today.com, Credit Sesame, and others.

About Rochester’s Real Estate Blog: Rochester’s Real Estate Blog is owned and operated by Kyle Hiscock of the Hiscock Sold Team at RE/MAX Realty Group.  With over 40 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.

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