To the average prospective buyer, the terminology, industry norms, and contract details of the real estate world can be a confusing web of questions. If you’re a first time home buyer, it’s understandable to feel embarrassed about asking some of the most basic (or not so basic) questions. For example, what does contingent mean in real estate? Although real-estate agents are here to help you with questions like this, we’re aware that it’s important to feel confident in your decision making and that you might want to start the home buying process with a more comprehensive understanding of how it works. That’s why I’m shedding light on some common sources of confusion that you may be too embarrassed to ask about.
What does contingent mean in real estate?
To the layman or first-time home buyer, “contingent” relative to real estate is often viewed as a sale being conditional on the sale of the buyers’ current home. But a standard real estate contract has several contingencies built into it. Common contingencies include provisions for a home inspection, attorney review, and typically financing. The purpose of any contingency is to have certain conditions met, and provide certain circumstances under which either party may terminate the contract. It’s also important to realize that the contingencies are bilateral, not just an option for the home buyer, and that it’s not an “on/off” switch; a sales contract is very specific about how one can exercise their termination rights without defaulting.
Can you put an offer on a house that is contingent?
Yes. However, the only contingency where it’s truly worthwhile is when there is a “home sale” contingency. This means the current sale is contingent on the buyer selling their home. In this case, you could have an offer accepted by the seller, but the buyer still has a right of first-refusal. The buyer has a certain number of days to either waive their contingency and move forward, or exit the transaction. It would be very rare that a seller accepts an offer if the sale is contingent on other items, primarily because the contract does not allow for an at-will termination.
What is the difference between contingent status and pending status in real estate?
Many online sites have conflated these terms that refer to the listing status. Contingent means there is a sale, but certain conditions need to be met. This is usually a home inspection, attorney review, and financing. Pending means all contingencies have been met, including full mortgage approval, and that the transaction must move forward or the buyer will forego their earnest money deposit.
Should I ask my realtor to mark my home contingent or pending?
It is not up to a buyer or seller. The terms of a sales contract dictate how the property must be displayed in the multiple listing service. In the Chicago metro, a sale must be marked as “contingent” once an offer is accepted and the contract has been signed.
Can a seller back out of a contingent offer?
Yes. However, the contract makes very clear what conditions/circumstances allow for that. It is typically easier to terminate a contract during attorney review; after that, a termination is typically complicated or not possible.
How long does a contingency last?
A contract dictates these timelines. The standard attorney review and inspection period is 5 business days. Financing contingencies default to 45 days. A home sale or close contingency has no defaulted timeframe, but typically is anywhere from 30-90 days.
Am I locked in if I submit a back-up offer?
If steps have been taken to formalize the offer as a “back-up”, which would likely include certain conditions being met, then potentially you are. Most of the time, a back-up offer is something that might be agreed to, but not formalized unless the original sale falls through.
What Is a Home Inspection Contingency?
The home inspection contingency is a period of time during which the buyer can have professional inspections performed at the property. Once the inspections are completed, the buyer can accept the contract and move forward, reject the contract and terminate the transaction, or request the seller address issues by either repairing or compensating with a credit. The goal should be addressing major issues that are atypical of comparable homes.
What Is a Mortgage Contingency or finance contingency?
The financing contingency stipulates what type of financing the buyer is using (conventional, VA, or FHA), and other important loan terms, including % of price financed, interest rate not to exceed, and loan amortization term. Should the buyer not be able to procure financing from a lender at terms equal to or better than what’s put in the financing contingency, then they can terminate the contract and receive a full earnest money refund.
What is an appraisal contingency?
There is no appraisal contingency. However, the financing contingency provides implied coverage for appraised value. In addition, many attorneys add a stipulation for the home appraising at contract price during attorney review.
What is a home sale contingency?
A home sale contingency is an optional contract provision where the sale of one home is conditional on the buyer selling another home. Typically, this includes a specific amount of time for the buyer to sell their home, and provides a right of first refusal for the buyer. This means that if another party attempts to purchase the home with a home sale contingency, the first buyer has the right to waive the sale contingency and still move forward. The contract usually provides between 24-72 hours for this decision to be made.
Can a contingent offer be withdrawn?
By nature, a contingency offers options for a contract to either proceed, or not to. There are specific actions or events that must occur for a contingency to be exercised. However, the ability to withdraw an offer “at will” is typically not included within a contingency.
What are the pros and cons of a back-up offer?
The pro is that you can secure a property you want, and not have to be in competition with the general retail market for a second time. The drawback is that having a formalized backup position could prevent you from moving forward with the purchase of another home, as you would be at risk of having a contract on two different home purchases.
What is a kick-out clause?
This term is often used to describe the “right of first refusal” provided by a home sale or home closing contingency. This means that if another party attempts to purchase a home while a sale contingency is in place, the current buyers have a specified amount of time to either waive the contingency and move forward with the purchase, regardless of the sale status of their home, or they can terminate the contract.
Interested in making a move?
Do you feel more equipped to embark on your home buying journey now? Hopefully, these insights have provided you with the confidence you need to jump into the process and find your new home. If you’re ready to become a homeowner, contact Scout Real Estate Partners and we’ll help you get started.
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