What’s A Contingent House and Can I Buy It?
After being in the homebuying business for some years, we came across the term “contingent house”. You may have heard it too. This is crucial for buyers and sellers. I define it as “shaping the concept of real estate transactions”.
Define a Contingent House
A contingent house means certain conditions must be met before the sale can be finalized. These contingencies must be addressed before the sale can proceed to closing. A common question that clients ask at this juncture is, “Alex, what kinds of contingencies?”
Common Types of Contingencies
- Financing – It allows the buyer to back out if they are unable to secure funding.
- Inspection – Buyers can request an inspection, and if significant issues are found, they can negotiate repairs.
- Appraisal – It ensures the home is at a value that meets or exceeds the purchase price.
- Home Sale – The buyer’s offer is contingent on selling their current home first.
- Title – It can allow the buyer to back out if there are issues with the property’s title.
What is The Difference Between Pending and Contingent?
As cash home buyers, Jon and I learned the difference between the two with experience. Each new deal with contingent homes leads to the revelation of pending homes.
Understanding Contingent in Real Estate
When I came across a contingent property for the first time, I realized that the seller had accepted the offer, but specific conditions had to be satisfied before the sale could close. In some regions, this is also known as “Active Contingent.”
I do emphasize that “a contingent sale is not a final sale and may fall through if the contingencies aren’t met. In such cases, the seller generally considers backup offers as long as they can meet the contingencies.”
Exploring the Meaning of ‘Pending’ in Real Estate
A pending status indicates that all contingencies have been met and the sale is progressing. The property is no longer active. Jon explains it as “the transaction is nearing completion and closing is underway.”
Examining The Likelihood of Contingent Offers Not Closing
Contingent offers falling through are not uncommon in real estate transactions. The specific probability largely depends on the contingencies involved and the parties’ ability to meet those conditions.
For example, if Jon’s financing falls through or the home inspection uncovers significant issues, the contingent offer may not proceed to close.
Additionally, if I fail to sell my current home within the specified timeframe, the contingent offer may not close, and I may lose out on my potential dream home.
Factors Affecting a Contingent Offer’s Progress
Several factors influence the progress of a contingent offer. The primary factor is how quickly the buyer satisfies the contingencies outlined in their offer.
- Better Offer – If the seller receives a more favorable backup offer or meets fewer contingencies, they may choose to proceed with that offer.
- Unforeseen Delays – Complications can arise during the contingent phase, delaying or cancelling the sale.
- Ineffective Communication – Miscommunication between the parties can result in a mess.
Mitigating Risks and Increasing The Chances of Success
While there’s an inherent risk in contingent offers, buyers can take certain steps to mitigate those risks and increase their chances of success:
- Work with a reputable real estate agent.
- Define the necessary contingencies in the offer.
- Adhere to the conditions and the timelines.
- Collaborate with all parties involved to mitigate issues regarding the contingencies.
- Display strong financial credibility as a buyer.
What Does Pending Mean in Real Estate?
As discussed, pending indicates that all contingencies have been fulfilled, and the sale is in the process of being finalized.
When a property is marked as ‘pending,’ all the necessary contingencies, such as inspections, appraisals, and financing, have been successfully addressed and fulfilled. Buyers need to note that while a property is pending, it is generally unavailable for showings or accepting additional offers. However, in some cases, sellers may consider backup offers if the pending sale falls through. Being in a pending status can give both buyers and sellers a sense of security.
Typical Timeframes for Pending Properties
The length of time a property remains pending can vary depending on several factors. I identify them as “market conditions and the transaction itself.”
What is a Home Sale Contingency?
When buying a house, a home sale contingency means the buyer’s ability to purchase the new property is contingent (it won’t happen unless) upon the sale of their home.
If you are buying a contingent home, our advice would be to include the home sale contingency.
Advantages and Disadvantages of Home Sale Contingencies
While a home sale contingency benefits buyers, it also has its drawbacks.
Advantages:
- Protection for buyers.
- Reduced risk.
- Flexibility in negotiations.
Disadvantages:
- Potential delay in the buying process.
- Limited negotiating power.
- Loss of the dream home.
Client’s Experience With a Contingent House
One of our clients set a contingency that their current home be sold before they buy the new one. Everything was going smoothly until our client ran into issues with their financing. The seller had three backup offers lined up. And one of them got the keys to the house.
Our client’s experience made us realize that pre-approval is essential, especially when dealing with contingent homes. Even though, as the buyer, they had security, this episode led them to lose the home of their choice.
Final Thoughts
This was a lot for a single read. I even had to make several cups of coffee to understand, grasp, and simplify it for you. Contingent homes are quite common in buying and selling, and people are now more aware of this concept.
If you need more clarity on contingent homes, reach out to us, and I will take out my professor’s hat.
