As you navigate the home buying or selling process, you will stumble across many terms that you may not be familiar with. As you sift through the market, you will run into properties with different statuses. “For sale” and “closed” are pretty self-explanatory statuses that you may grasp, but you are also likely to see listings that are “pending” or “contingent offer”. Understanding these terms will help you better understand if and how you should pursue any of the properties.
So, what exactly does contingent mean on a house? Can you still put an offer in if a property is listed as contingent? Should you?
In this post, we will explain exactly what a contingent offer means in real estate, as well as the important differences between contingent and pending. Read on to learn more about contingent offer from real estate.
If a home is listed as “contingent”, then the seller has accepted an offer from a buyer that includes contingencies. Contingencies are conditions that one or both parties must meet before the sale will go through. Either the buyer or the seller can place contingent offer. There are many different reasons that people place contingencies on an offer, and if the conditions are not met then the sale will not go through.
Common Types of Contingencies
Contingent offers are quite common, as there are many different reasons the buyer or seller would want them. If a buyer is also selling their current home to move, then the buyer will not want to complete the sale until they sell their current home and obtain a mortgage. Typically, buyers will want to wait until they can sell their home before buying another one to avoid financial troubles.
But, there are many other situations that prompt a contingent offer. Some of the most common contingencies include:
If the inspection uncovers problems with the home, then the buyer can request compensation, repairs, or decide to pull the offer.
If the home is valued at a price less than the offer, the buyer can lower their offer or opt-out. As a buyer, you do not want to overpay for a home. A third party will come in to evaluate the value of the home for sale based on its condition, features, location, and more. If the appraisal comes out as less than the asking amount or offer, the buyer has the right to change their offer or back out of the deal.
The seller has the right to opt-out if the buyer is unable to secure the home mortgage or loan in time. Buyers should not sign a property sale without being sure they have the finances to complete it. The mortgage contingency protects both the seller and buyer from entering a sale without the correct loan. For this contingency, the buyer sets a due date for the time they will obtain the loan to cover the mortgage. If the buyer is unable to secure the loan by that date, then the buyer can exit the sale with their down payment.
The buyer can opt-out should the title report reveal conflicting ownership status.
Active- Kick Out
The seller can opt-out if the buyer is unable to sell their current home in time.
Active- First Right
The seller can opt-out if the buyer is unable or unwilling to match additional offers made on the home.
Can You Make an Offer on a Contingent Home?
As a prospective buyer, you can place an offer on a home at any stage in the process. Contingent listings are still active, and the seller can still opt-out if the conditions are not met. One of the most common contingencies is that the buyer sells their current home first. If the buyer is unable to do this, the seller will look to consider other options. When a seller receives additional offers while under the contingent status, they can contact the original buyers and allow them a certain amount of time to remove the contingency. Should the buyer choose to leave the contingency, but if they are unable to make the purchase, then the seller can move forward with another buyer.
Making an Offer on a Contingent Home
If you are very interested in a contingent home, then you should consider pursuing it. Simply get in touch with your real estate agent about putting in a strong offer on a contingent home. However, to win a home that is listed as contingent, you will need a great strategy. Some of the keys to making an effective offer on a contingent home include:
- Consider making a contingency-free offer. Making another offer with contingencies is not a strong strategy, as the seller is already dealing with the conditions of the initial offer. An offer without contingencies is extremely attractive to sellers and will be enticing. An offer without contingencies will motivate the seller to put some pressure on the current buyer, which may end the negotiations.
- Speak with the listing agent. Ask your real estate agent to speak with the listing agent and assess the state of the offer. Evaluate which inspections have taken place and the sellers’ attitude toward the sale. This is a great way to find out if it is worth your time to pursue an offer on the contingent property. If the seller makes it clear that they will not entertain additional offers, then you are better off looking for another home.
- Send a compelling letter. While it may not make the biggest difference, writing a personal letter can help. A personal letter paired with a strong offer may give you the advantage against the current buyer and any future bidders.
The Risks of Making an Offer on a Contingent Listing
There is a natural risk that comes from making an offer on a home, but there are some unique considerations for making an offer on a contingent listing. Some of the risks to consider before making an offer on contingent listing include:
- Time. The main deterrent is your time. When a home is listed as contingent, there is already an accepted offer, so the process is more complicated than offering for an open listing. If the seller is interested, they will give the initial buyer at least 48 hours to change their listing.
- Missing a better listing. When you focus on a contingent home, you may miss out on another home that is an equal or better fit. By the time you find out about the contingent home, you may have already missed the opportunity to put in a strong offer elsewhere, which delays your entire process.
- Not being able to add contingencies. As we mentioned, it is most attractive when you put in an offer without contingencies, especially when you are trying to purchase a home that is currently listed as contingent. However, if you are also a current homeowner trying to sell your home, this is risky. Without contingencies, you may end up in a tough situation.
Does a Seller Have to Accept an Offer with Contingencies?
A seller does not have to accept contingencies on an offer. However, many buyers are looking to add contingencies so that they can protect themselves. Sellers who refuse contingencies will struggle to get many offers and may take a much longer time to sell their home. However, contingent offers are slightly risky for sellers, as they do not guarantee that the sale will go through. Luckily, the seller can still accept new offers.
Sellers who must move quickly should highly consider contingent offers. Generally, as a seller, you should consider contingent offers as long as the contingencies are reasonable. After all, the contingencies protect both the buyer and the seller in many cases.
Considerations for Sellers
With a home sale contingency, the seller cannot be sure that the home will sell. While the seller can still accept offers, a “contingent” listing is not as attractive to prospective buyers, and many will avoid houses under contract because of the added complexity. While accepting a contingency is often important, there are some key considerations that the seller should evaluate. For the most common type of contingency, a home sale contingency, the seller should consider:
- Has the buyer already posted their current home on the market? If not, then you may want to think twice. Buyers who have not listed their homes on the market may not be very serious about buying and selling and could waste your time.
- Is the buyer’s listing aligned with the market value? The buyer listing their home is a great first step, but you want to also make sure they are listing at a comparable price to ensure it will sell.
- How long has the buyer’s home been on the market? When a buyer’s listing has been on the market for a very long time, it may be a sign that there is an issue with the home, showing the procedure, or price.
- What is the average time on the market for homes in the buyer’s area? Consider the average time on the market for the houses near your buyer’s. If the time is under 30 days, then you could reasonably expect the home to sell in time to complete the offer. If the time on the market is very long, like over 90 days, then it is unlikely the buyer’s home will sell.
Pending vs Contingent
Another term you have likely heard alongside contingent is “pending”. While the two are related, pending and contingent are two different real estate terms with unique meanings. Once all the requirements from a contingent offer are met, then the status changes to pending. When a listing is pending, the only steps left are the final paperwork and closing. Unlike contingent listings, pending listings are NOT considered active.
Difference Between Contingent and Pending
The main difference between a contingent and pending offer is the status. Contingent offers are still active, so prospective buyers can still put in offers. Pending listings are not active, so the seller cannot hold showings for new buyers. While you can make offers on a contingent listing, you usually cannot make one on a pending listing.
Types of Pending
Typically, you cannot make offers on pending listings. However, there are some exceptions. Here are the most common types of pending listings:
When the accepted offer is a short sale, it must be approved by banks outside of the buyer or seller’s control, or additional lenders. This means that the pending offer could take longer to process.
In rare cases, the offer may be pending for more than four months. Delayed construction, long negotiations, agent oversight in listing updates, or unusual processing times can cause an offer to be pending for four or more months.
Sometimes, pending listings can take backup offers. When the seller accepts the offer but hits an issue in the final stages, they may take backup offers in case the original offer falls through.
Homes listed as “contingent” have an accepted offer with contingencies that are in place to protect the buyer. The contact must explain the details or the contingency as well as the timeline. Most sellers will still continue to market their home and consider additional offers. Once the conditions are met, the home will go from “contingent” to “pending”. Buyers can make offers on contingent listings but will need to consider the additional complexities that come with that.
Navigating listings, especially contingent ones, can be challenging for buyers. That’s where we can help. Learn more about how we can help you through the process and schedule your free consultation by contacting us HERE.
Contact us at (605) 718-9820 or a schedule a call with us to let our mortgage experts help you with your home loan.
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