What Does Contingent Mean in Real Estate?

5 Common Real Estate Contingencies for Buyers

The word contingent means dependent upon something happening. In real estate, most buyers make offers contingent upon certain conditions being met. This means the buyer's offer to buy the home will follow through to a purchase only if specific things happen, such as the buyer getting approved for financing and the home passing inspection.

Contingencies are common in real estate transactions because buyers must do due diligence before purchasing, a process which costs money. For example, buyers usually only want to pay for an inspection if they know the seller will sell them the home in the end. Sellers may also include contingencies in a contract for sale if they have conditions they want met before they sell the home.

This guide will explain what contingencies are and how they can affect your home purchase or sale.

What Does It Mean When a House is Contingent?

When a home is listed for sale, it goes into a database called the Multiple Listing Service. Homes that are up for sale with no accepted offer are listed as Active in the MLS, as people can come and see them and make offers on them.

When a buyer decides to make an offer on the house, they usually includes certain conditions that must be met before the sale will go through. These conditions are necessary to protect the buyer because in a property sale, there's a knowledge imbalance between the buyer and the seller. The buyer must be able to learn more about the house without worrying about the seller selling it out from under them during the process.

If the seller accepts the offer, the home is no longer actively available. It will become available again only if conditions aren't met and the offer to buy is cancelled. As a result, after an accepted offer, the house is listed as Contingent on the MLS. The seller may accept backup offers, but chances are good the house will ultimately be sold to the current buyers.

Listing a property as contingent alerts others that the seller has accepted an offer, so people buying a home are aware and won't waste their time on a home that most likely will be sold.

If the conditions are met, or the contingencies in the offer contract are satisfied, then the home will be listed as Pending, or moving towards closing, and then as Closed once the deal is done.

5 Common Real Estate Contingencies for Buyers

In theory, a buyer could make an offer contingent upon any conditions they want. However, there are some common contingencies that are part of most real estate transactions. Here are the types of contingencies a buyer is most likely to include in a real estate offer.

1. Title Contingency

Title refers to legal ownership of a property. When you take title, you become the owner. If there is an easement or a tax lien on the property, those come with the title. As a result, many buyers make the sale of the property contingent on the seller being able to deliver clean title.

A title company will conduct a property title search and, if there are unexpected problems like a tax lien, the seller will have to resolve those issues before the sale can go forward.

2. Home Sale Contingency

A home sale contingency may be necessary if the buyer has a current home they have to sell before they can buy the new property. In this case, the buyer would make their purchase of the new home contingent on selling their current home first.

Usually, the buyer has a limited time to sell their own property, such as a few months. Sellers may be reluctant to accept an offer with a home sale contingency because this introduces a lot of uncertainty into the process. The seller is left hoping that their buyer finds a buyer, and the seller's property could be off the market for months while waiting for that to happen.

Because of the added risks of the deal falling apart, sellers often won't accept a contract with a home sale contingency if they have other good offers.

3. Home Inspection Contingency

A home inspection contingency is very common and is part of almost every real estate sales contract. This gives the buyer the right to have a professional inspector come in and assess the condition of the home.

Without a home inspection contingency, a buyer faces a serious risk of finding out about major problems only after they purchase the home. No one wants to buy a property only to find out there is major structural damage or the HVAC system doesn't work.

If the inspector finds problems, the buyer may require that the seller fix them before closing or reduce the price based on estimated costs of repairs. In some cases, the buyer will simply walk away from the sale if the problems are too serious.

4. Appraisal Contingency

A home appraisal is an important part of most real estate transactions because mortgage lenders usually require an appraisal for borrowers. Lenders want to confirm the home's market value because buyers can't borrow more than a certain percentage of what the home is worth.

If a home doesn't appraise for enough, a buyer wouldn't be able to get a mortgage to buy it unless the buyer makes a larger down payment. Most buyers also want to make sure the home is worth the purchase price, regardless of whether they could make a larger down payment or not.

As a result, it's very common for buyers to put an appraisal contingency in place and make the offer to buy the home contingent on the house appraising for the amount they're paying for it (or more).

5. Mortgage Contingency

Finally, many home buyers need to get a home mortgage in order to be able to buy a house. Since a buyer can't get final approval on a loan until they have a home they've made an offer on, buyers often put a mortgage contingency in their sales contract. This allows them to move forward with the purchase only if they get final approval for a loan to buy the home.

A mortgage contingency is also sometimes called a financing contingency, because the buyer is saying they'll only purchase the home if they can get financing. Sometimes, buyers also make their offer contingent not just got on getting a loan, but also on getting one below a certain rate.

Sellers are more likely to accept an offer with a mortgage contingency if a buyer provides proof of prequalification or preapproval, so buyers may want to work with a mortgage lender before making an offer to get the process started.

Here is an example of contingency in real estate:

• A buyer finds their ideal home and makes an offer contingent on a home inspection and an appraisal.
• The seller accepts the offer on the home and changes the listing on the MLS to contingent. This is the appropriate contingency status because the conditions necessary for the sale to close haven’t been satisfied.
• The results of both the inspection and appraisal are satisfactory. The buyer releases the contingencies.
• The seller changes the MLS status to pending because all of the contingencies have been cleared, but the sale is still not finalized yet.
• The closing date arrives, and the buyer and seller complete the sales transaction. The home is listed as sold.

Types of Contingent Listings

There are different kinds of contingency status to make the exact situation clear to other potential purchases. Here are the most common types of contingency status that you may see on the MLS.

• Continue to show (CCS): This means the seller has accepted an offer but is continuing to show the property and accept backup offers. A seller may want this status if they have doubts about whether a deal will ultimately close.
• No-show: This means the seller has accepted a contingent offer and is no longer willing to show the home.
• Probate: Here, an offer has been accepted but the closing of the sale is dependent upon the probate court's approval and/or the settlement of the estate. It suggests there could be a longer closing process.
• Kick-out: With this contingency status, a seller has accepted an offer but may continue to market the home and can potentially reject the first offer if another comes along. The original buyer may have a short time to clear their contingencies before being kicked out when there is a kick-out clause. On the other hand, some offers have a no kick-out clause, and the seller cannot accept another better offer.
• Short sale: This means an offer has been accepted but is conditioned upon the bank allowing a short sale. A short sale happens when a home is sold for less than the total amount owed, so it does not generate enough proceeds to pay off the home loan. Short sales can take longer to close.

Anyone who is buying a property needs to understand these contingency classifications so they can decide if a particular home is worth viewing.

Contingency in Real Estate FAQs

Still need to know more? Here are the answers to some frequently asked questions about contingencies in real estate.

Can You Put an Offer on a Contingent House?

You can put in an offer on a contingent house, but it would be a backup offer, and the chances of getting the home are slim.

A contingent house means there is already an offer and a sale will go forward as long as certain conditions are met. Your real estate agent can help you understand the contingency status and determine how likely it is that the original offer will fall through, but most homes that are contingent ultimately close.

Will Sellers Accept a Contingent Offer?

Most offers to buy a home contain some contingencies, such as an appraisal or inspection contingency. Sellers accept these contingencies because they are routine and essential to protect buyers.

Other contingencies, such as an offer contingent on the sale of a buyer's current home, are less likely to be accepted because of the lower chances of the deal ultimately going through.

What’s the Difference Between Contingent and Pending?

Contingent means that an offer has been accepted but there are still conditions to be met before the deal goes through.

Pending means that all of the conditions have been met but the buyer and seller are waiting to close.

It can take anywhere from a few days to a few months for a sale to go from contingent to pending status since this change depends on how long it takes to satisfy all conditions.

Is It Worth Looking at a House That’s Listed as “Contingent?”

When a listing is contingent, the seller has accepted an offer that came with certain preconditions. Unless those conditions aren't met, the home will be sold to the buyer who made the offer.

If you really like a home that is listed as contingent, you can always look at it -- as long as you understand that the chances are much lower that you'll be able to buy it.

Final Thoughts: What Contingent Means in Real Estate

Contingencies matters quite a bit in real estate. Making your offer contingent helps protect you during the process of buying a home, and understanding different contingency status updates can help save you from disappointment.

Now you know the details, so you can make more informed choices during your own real estate transaction. You can start the process of finding a perfect home by applying for a mortgage prequalification .