What does contingent mean in real estate?

Contingent means conditional, or dependent on something else. In real estate, a contingent offer is one that rests on something else, and it is important for both homebuyers and sellers to know how it works. Once the stipulations — or contingencies — are met, a house that was contingent becomes pending.

Including a contingency in a purchase contract could determine whether a real estate transaction is seamless or stressful — and how long it takes. While contingent offers are often due to, in some form, the buyer having to sell their old home first, this is hardly the only potential holdup in the real estate game.

What is a contingent offer on a house?

When a prospective homebuyer makes a contingent offer, that means the home sale will only go through if certain conditions are met. If something goes wrong during the sale, the buyer can back out without losing their earnest money deposit. Buying a house can be contingent on a few different things, which are laid out in clauses called contingencies in a purchase agreement.

Contingent offers usually protect the person buying the home, but can be undesirable for homeowners who are trying to sell.

How long does a house stay in contingent status?

A contingent listing will stay that way for a specified period of time until the buyer fulfills the conditions and proceeds with the sale - or they don't, and the sale falls through. Contingencies can last anywhere from 30 to 90 days.

How long a contingent offer is good for ultimately depends on the purchase agreement signed between the buyer and seller. The contract will contain any details about contingencies, if the buyer chose to have them, including whether or not the listing agent will continue to show the house during this time. If there's a kick-out clause, then the seller can keep meeting potential buyers while the house is in contingent status in case someone comes through with a better, non-contingent offer.

Common types of real estate contingencies

Failing to meet a contingency clause means the home sale may fall through. Here are the four most common contingencies you'll encounter when buying or sell a home. (If you're looking at short-sale homes, keep in mind that they may come with additional contingencies).

1. Mortgage contingency

Many people don't have enough money to buy a house in cash, so they get a mortgage, which requires submitting an application to a lender. This clause, also known as a financing contingency or loan contingency, means that if the buyer has trouble qualifying for a mortgage, they can drop out of the contract without any penalty.

2. Home sale contingency

A home sale contingency lets existing homeowners make an offer on a new home, but whether or not it goes through is contingent on selling their old one. This is a common contingency for people who are buying and selling houses at the same time that prevents the them from being stuck with two houses, and their costs: The way it works is, if you don't sell your old home, then you can back out of buying the new one.

3. Inspection contingency

An inspection contingency gives buyers the ability to negotiate repairs or cancel the contract based on the results of a home inspection. When an inspection reveals any issues, a potential buyer can ask the seller to fix the issue or give up concessions. If they can't reach an agreement, or the damage is severe, irreparable, or not worth the cost, the buyer can choose cancel the contract when it includes this contingency.

4. Appraisal contingency

Whether or not mortgage lenders will extend you a loan is contingent on the results of an appraisal. If the appraised value of the home is not comparable to the purchase price, the buyer may not be able to get financing to buy the house. When that's the case, the buyer can try to negotiate a lower purchase price or decide to walk away at no cost with an appraisal contingency in place.

5. Title contingency

The purchase of a home can also be contingent on a title search, which can reveal liens or judgements. If there are any issues with the title, the owner must clear them or else the buyer can walk away under this contingency.

What contingencies mean for buyers

Buying a home is typically the biggest purchase someone will ever make, and contingencies help buyers ensure that their investment is secure. However, if you're a buyer looking to make a competitive offer, contingencies could hold you back. That's because sellers usually prefer contingent-free bids, which give them more certainty about what will happen with the sale. Some buyers in hot markets choose to waive contingencies in their bid, but many people can't afford to take this risk, especially if they're buying a home before selling.

If you're looking for your next home, Orchard can help - We can even help turn you into a cash buyer so you don't have to make a contingent offer.

Can I make an offer on a contingent home?

When a home is in contingent status, the sale isn't final so it can be worth a shot to put in an offer. (On the other hand, a "pending" status means that any contingencies have been met, and the sale is expected to go through with the current buyer.) The worst thing that can happen is that your offer is rejected. If the seller does accept your offer, be prepared to move quickly, since the seller might be motivated and ready to finalize the transaction.

You can beat out a contingent offer by making a higher offer, or making an offer in cash - cash offers free up contingencies, which are enticing to the seller, and give you more negotiating power.

If someone has already made an offer on your dream home, but you're still interested in buying it, let your real estate agent know. They can talk with the listing agent to get more information about the status of the contingent offer, and whether to get your hopes up about the seller reviewing yours.  

What contingencies mean for sellers

A contingent contract means that the accepted offer isn't final and may not work out, in which case the seller would have to go through the whole process of finding a buyer again. In a seller's market, where there are more prospective buyers than there are houses, sellers may easily find a buyer willing to make a non-contingent offer.

Contingencies can also lead to time-consuming appraisals, inspections, and more waiting, which lead to a longer closing process.

Can you avoid real estate contingencies?

Sellers aren't required to accept contingencies, and buyers can waive them, which may not be ideal if you're buying a house before you sell. The easiest way to make a no-contingency offer is to make a cash one, which can also help you close faster.

If you work with Orchard, you can get many of the benefits of a non-contingent contract. We guarantee the sale of your current home - that way you can make a contingency-free offer on next one. That peace of mind can help you shop for your new home without worrying about selling your current one.

Interested in learning more? Start by finding out how much your home is worth.