What Is a Contingent Sale?

by | May 8, 2020 | Real Estate Glossary

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A contingent sale can be a challenging thing to handle, but they’re manageable if navigated properly. As a real estate term, a contingent sale can sometimes mean that a buyer is unable to purchase a property without selling one they already own due to financing, or it could be based on other contingencies too. A contingent sale is not the same as a pending sale.

So what exactly are these contingencies? They’re the clauses in your contract that give you an out if something unforeseen or unexpected arises. A contingency can sometimes mean that a buyer is unable to purchase a property without selling one they already own due to financing. But more often than not, it means there are certain things the seller must meet/improve/etc with the house before the sale moves on up to pending – i.e. the buyer’s offer is contingent on the seller completing these tasks. They can also help protect you from losing your earnest money and can give you leverage to get the seller to help you deal with whatever comes up.

Home inspection contingent offer

A home inspection contingency is very important to homebuyers as it gives buyers the right to have the home they are offering on professionally inspected, before anything else in the transaction can happen. The entire transaction usually relies on a home inspection contingency so if something is wrong, this allows the buyer to ask that it be fixed, renegotiate the price, or even back out of the sale. Buyers should always have this clause in a sales contract.

Appraisal contingency

Another important real estate contingency, the appraisal contingency allows a buyer to back out of the deal if the home appraises for less than the sale price. It’s almost always in the best interest of a buyer to not overpay for a home unless they cannot let it pass up or it’s a hot real estate market.

In hot real estate markets, an eager buyer might over bid on a property and waive the appraisal contingency because there are multiple bids In this scenario a mortgage company is only going to cover what the property is worth so the buyer would need to bring money to the table to cover the difference.

Mortgage contingency

A mortgage contingency will ensure that there is money to back up the sale of your property and It protects the buyer and seller from getting into a real estate sale without a proper loan. Under the mortgage contingency, the buyer has a specified time frame to get a loan substantial enough to cover the mortgage once an offer is accepted.

If a buyer can’t find a lender that will give them a loan, the buyer and seller have the right to walk away from the sale. This is why it’s better to be pre-approved before the buyer starts making offers on properties. That way the buyer isn’t wasting their time or the seller’s time since you’ll already know that you can obtain a loan quickly.

Title contingency

A buyer can put a title contingency in their contract that will protect them as a buyer if the title search reveals that there is any doubt in ownership of the property you are offering on. With a title contingency, the buyer can walk away from the deal if anything suspicious comes up. This is why real estate attorneys almost always recommend title insurance.

One example of where a title contingency might benefit the buyer is when they review potential easements that are on public record. The buyer may not feel comfortable with certain easements. Maybe there is a shared driveway easement for a neighbor that would give other people access to the property which would qualify as a reason for backing out of the deal if the buyer have a title contingency in affect.

Home sale contingency

A home sale contingency can be useful to the buyer because they can ask a seller to take the home off the market so that they can sell their current home. Typically, a time frame is specified to the buyer that they must abide by in order for the home sale contingency to work.

If the buyer’s home doesn’t sell within the allotted time frame, then the seller is legally able to put their home back on the market and try to find a different buyer. Usually a home sale contingency is not accepted by sellers because it leads to more time spent for the seller to actually sell their house, which often leads to frustration and oftentimes failure.

Right of first refusal

Right of first refusal is another common contingency that you will see in some real estate transactions. First right of refusal works when a seller gets a second or third offer, the first interested buyer has the opportunity to move forward with the transaction.

Making an offer without contingencies

Making an offer without contingencies can be relatively risky for buyers, however it is attractive to sellers, depending on the contract they have entered. It may allow them to pressure their current buyer to also drop their own contingencies or leave the all together.

Are contingent offers good?

There is no right or wrong answer on this one. Every situation is different. While contingent offers can pose additional risk, there are times when it makes sense for a buyer and a seller. Talk with your agent to understand what the contingencies are and what the extra steps will be to bring you to a smooth closing.

What is active contingent?

Sometimes a seller will choose to keep a home on the market after accepting a contingent offer. This is called active contingent. The reason a seller will do this is to continue to get back up offers in case the contingent offer falls apart. If you see a home labeled as “active contingent” it typically means that a seller has accepted an offer but certain contingencies (listed above) need to be met before a sale can be finalized.

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