What Does Contingent Mean in Real Estate?

Finally, after months of searching, your dream home reveals itself as a three-bedroom, two-and-a-half bath Craftsman. It includes a stone fireplace and built-in mahogany shelving, and yes, you are now officially in love. 

But, although it’s still listed for sale, it’s marked as “contingent.” That’s the real estate version of social media’s relationship status — “it’s complicated.”

So what does contingent actually mean when it comes to real estate? It sounds complex, but it’s really very simple.  

Let’s look at what contingency means in real estate and how it affects you, the homebuyer.

What is contingent real estate?

A listing marked as contingent means the buyer and seller agreed to a contract, but only if certain criteria is met. It gives both the buyer and seller a way out if these certain agreed-upon clauses are not met. 

The clauses vary from buyer to buyer and seller to seller. They can range from passing a home inspection to a time frame the buyer has to secure a mortgage and everything in between.

Simply put, if either the buyer or seller fails to meet any of the agreed-upon criteria in the contract  — contingencies —then the sale is canceled without penalties. 

Consequently, both buyer and seller are on the hook for the home sale if all the contingents are met. It’s no matter if the seller receives higher offers when it is in contingency.  

Outside buyers can put an offer on a home listed as contingent. Depending on the timing – of the offer, it secures a spot at the front of the line if the sale falls through because the contingencies were not met. 

But the seller may not be able to accept offers. It all depends on what kind of contingency status the buyer and seller agreed to. 

Common contingencies included by sellers

There are several types of contingency statuses that can be written into a contract by the homeseller. Some of the most common ones include the following. 

Continue to Show (CCS)

While the property is under a contingency contract and will be sold if all the criteria is met, the seller can continue to show the home and accept offers. If all contingencies are met, then the contract goes into pending. The seller cannot cancel the contract if they receive higher offers. The contingency contract is binding. 

No Show

Seller cannot list or show the property while under contingency contract. The property is off the market unless contingencies are not met. 

With Kick-Out

This protects the seller by giving the buyer a deadline from which they have to meet the contingencies. The seller can accept bids and show the home, but cannot enter into a contract with another buyer. 

Without Kick-Out

No deadline is set by the seller for the buyer to meet its contingencies. The seller cannot accept bids or show the property with this clause. The property is spoken for unless the contingencies go unmet. 

Contingencies protect both seller and buyer

There are several basic reasons a buyer and seller would enter a contract with contingency clauses. They all have to do with protecting both the buyer and the seller. 

Appraisal Contingency

Inserted into purchase offers, this contingency gives the buyer an option of bailing out of the contract if the property isn’t appraised at the amount they agreed to pay. 

If that happens, often buyers and sellers will renegotiate the purchase price to fit the appraisal. But if the two parties can’t come to an agreement, both walk away thanks to the appraisal contingency.  

This is particularly useful when putting in an offer on a home or property listed as-is. 

Financing Contingency

This protects buyers who, for any reason, are unable to get a loan in the agreed-upon timeframe after the contract was accepted by the seller. It allows them to get their earnest money back — a 1% to 5% good-faith down payment that is put into escrow during this period of purchase. 

The stipulations in the financial contingency clause can be very specific and vary from buyer to buyer. It usually gives buyers 30 to 60 days to obtain financing. 

Home Sale Contingency

This is a contingency made for buyers who want or need to sell their current home before purchasing another. Most people do not or cannot afford to pay mortgages on two homes. This protects folks in the market for another home from getting jammed-up with two giant bills. 

There are two types of home sale contingencies: Sale and settlement contingency and settlement contingency. 

Sale and settlement contingency is used if a buyer has not yet received an offer on their current home. It usually allows the seller to continue to list and market their home. 

Settlement contingency is used when a buyer has a pending offer on their current home, but the sale has not yet legally gone through. This protects the buyer if the sale falls through. 

Inspection Contingency

Just how it sounds, an inspection contingency gives the buyer a certain amount of time, usually a week, to inspect the property. Many lenders won’t even lend without an inspection. Simply put, if the inspector finds any major damage, the buyer can walk away without penalty. 

A certified inspector will search for damage that untrained people may not see, such as problems with the foundation, hidden water damage, or mold infestations. It’s essential when buying a home as-is.

Conclusion on contingencies

Contingency is just another strategy to ensure home purchasing and selling are as fair and painless as possible.

A majority of real estate contracts and negotiations include contingent clauses, and for good reason —it protects both buyer and seller. 

Finding the right home can be confusing, but home.com by Homefinity provides a checklist to help buyers understand exactly what they need and want. 

home.com by Homefinity is truly a great resource for both new buyers and those looking to upgrade their living space to match their current needs. 

With a good real estate agent, trusted home inspector, and an experienced loan specialist from Homefinity, the mystery of buying a home disappears. 

Reach out to discuss pre-approval today!

*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.

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