Top Googled Real Estate Question- What Does Contingent Mean in Real Estate?

The number three googled real estate topic this week was “What Does Contingent Mean in Real Estate?” This question saw a 130% rise in inquiries. As buyers are shopping for homes it is not uncommon to see the word contingent come across in home listings, real estate articles, and more. Or for a seller to see this word pop up in an offer agreement.

What does the word contingent mean when it comes to real estate?

In real estate contingent is a status stating that the seller has accepted a buyer’s offer and that the offer has certain requests to be met before the sale becomes final. If the buyer or in some cases the property is unable to meet the contingencies then the buyer may back out of the sale agreement and receive their earnest money back.

In general the fewer contingencies in a purchase agreement the better it is for the seller.

The Most Common Contingencies in Real Estate

According to the National Association of Realtors Confidence Index Survey, 76% of offers had contingencies in the purchase offer. These were the top four contingencies reported in the survey:

Inspection Contingency

This is a smart contingency that every home seller should come to expect from a buyer. It is most often requested or a mandatory requirement from a lender in addition to the buyer. This is a means for a buyer (and their lender) to know if the home is in a safe condition as well if there are any cosmetic issues. This can be used as leverage to negotiate repairs should something of concern be found by the inspector. If you refuse to come to an agreement about repairs or lowering the purchase price to cover them the buyer can walk away without negative impact.

Appraisal Contingency

This type of contingency is most often a mandatory requirement of the lender for buyers seeking to buy the home with a mortgage. This tells the lender that they are not lending more money out to the buyer than the home they plan to purchase is worth. The home must appraise by a professional appraiser at an equal or higher value to the amount offered from the buyer. If the appraisal comes in lower the buyer will either need to put more of their own money into the purchase or renegotiate the sale price.

More: Great Tips for Home Buyers

Financing Contingency

This can also be called a mortgage contingency. This states the buyer can back out of the purchase agreement if their lender does not approve the loan for the home. This is a very common contingency and where the word contingent or pending comes into play on a home listing. According to the National Association for Realtors®, this contingency has been the cause of 35% of home closing delays in 2019.

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Home Sale Contingency

This means that the buyer making the offer has a home of their own up for sale and they will only be able to purchase the new home when their home sells. This means the deal on the home they are offering to buy will only go through when the home they currently live in is purchased. This is maybe the riskiest of contingencies for sellers.

Contingencies in home sales can be both risky and helpful to a home sale. If you are a buyer or a seller needing to request or accept a contingency the best approach is to use the advice of an experienced real estate agent.

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