When it comes to buying or selling a home, many terms and phrases can be confusing for someone who is not familiar with the real estate industry. One such term is “contingent”. If you have been browsing listings or working with a real estate agent, you may have come across this term and wondered what it means.

In simple terms, contingent means an offer has been made on a property, but certain conditions must be met before the sale can go through. These conditions are known as contingencies and protect the buyer and seller in a real estate transaction.

Types of Contingencies

There are various types of contingencies that can be included in a real estate contract. Some common examples include:

• Financing contingency – This means that the sale is contingent on the buyer securing financing for the purchase.
• Inspection contingency – This gives the buyer a specific amount of time to have the property inspected and negotiate any repairs or credits with the seller.
• Appraisal contingency – Similar to a financing contingency, the property must be appraised for at least the agreed-upon purchase price.
• Sale contingency – This is more common for buyers also selling their current home. It means that the sale of the new property is contingent on the sale of their current one.

These contingencies can vary depending on the terms and conditions agreed upon by both parties. Sometimes, a seller may also include contingencies in the contract to protect themselves, such as a home sale contingency where they can back out of the deal if they cannot find a new home to purchase.

Why Are Contingencies Important?

Contingencies serve as safeguards for both buyers and sellers in a real estate transaction. For buyers, contingencies allow them to thoroughly inspect the property and make sure it meets their expectations. If any issues arise during the inspection, they can negotiate with the seller to address these concerns or even back out of the deal if necessary.

On the other hand, contingencies also protect sellers by giving them a certain level of security and control in the sale. For example, if a home inspection reveals major repairs that need to be made. The seller can either make the repairs or negotiate with the buyer on how to address them. If the buyer is unwilling to work out a solution, the seller can move on to another interested party.

Contingent vs. Pending

Another term often used in real estate transactions is “pending”. While pending and contingent may seem similar, the two have some key differences. When a property is listed as contingent, an offer has been accepted but the sale is still subject to certain conditions being met. On the other hand, when a property is listed as pending. It means that all contingencies have been satisfied and the sale is in its final stages.

In simpler terms, contingent refers to an offer that is still in progress while pending refers to an almost finalized offer.

What Happens If a Contingency Is Not Met?

If one of the contingencies outlined in the contract is not met, it can result in the sale falling through. This is why it’s important for both parties to carefully review and negotiate these contingencies before entering into a contract.

For example, if buyers cannot secure financing by the agreed-upon deadline, they may have to back out of the deal. Similarly, if a home inspection reveals serious issues that the seller is unwilling to address, the buyer may terminate the contract.

In some cases, contingencies can also be used as bargaining chips during negotiations. For instance, a buyer may use an appraisal contingency to negotiate a lower purchase price if the appraisal comes in lower than expected.

Tips for Dealing with Contingencies

If you are buying or selling a home and contingencies are involved, here are some tips to keep in mind:

• For buyers: It’s important to carefully review all contingencies outlined in the contract and make sure they align with your needs and expectations. If possible, try to negotiate for a shorter timeline on contingencies to prevent delays in the sale.
• For sellers: It’s important to be realistic when agreeing to contingencies and make sure they are reasonable for both parties. Also, try to set strict timelines for meeting these contingencies to avoid any uncertainties or delays in the sale.

Common Myths About Contingencies

There are many misconceptions about contingencies in real estate. Some common myths include:

• Contingencies are only beneficial for buyers: As we’ve discussed, contingencies protect both buyers and sellers by outlining specific conditions that must be met before the sale can proceed.
• All contingencies are set in stone: While some contingencies, such as financing or appraisal, may be non-negotiable, others can be negotiated between the buyer and seller.
• Contingencies make a property less desirable: While contingencies add an extra step in the sale process, they protect both parties and ensure a smooth transaction. In fact, many buyers feel more confident purchasing a home with contingencies in place.

Conclusion

In summary, contingencies play a crucial role in real estate transactions by protecting both buyers and sellers. They outline specific conditions that must be met before the sale can proceed and allow for negotiations between both parties if any issues arise during the process. Whether buying or selling a home, it’s important to understand contingencies and their impact on the sale.

FAQs

Q: What is a financing contingency?

A: A financing contingency means that the sale of the property is contingent on the buyer securing financing for the purchase. If they cannot secure financing by the agreed-upon deadline, they may have to back out of the deal.

Q: Can contingencies be negotiated between buyers and sellers?

A: Yes, some contingencies can be negotiated between buyers and sellers. However, some contingencies, such as financing or appraisal, may be non-negotiable.

Q: Do all real estate transactions involve contingencies?

A: No, not all real estate transactions involve contingencies. It depends on the specific terms and conditions agreed upon by both parties.

Q: How long do contingencies typically last in a real estate transaction?

A: The length of contingencies can vary. However, they are typically outlined in the sales contract and have specific deadlines for completion.

Q: Can a seller back out of a deal if all contingencies are met?

A: No, once all contingencies have been met, the sale is considered final and the seller cannot back out of the deal.

Conclusion

Contingencies are an important aspect of real estate transactions, providing protection and negotiating power for buyers and sellers. Understanding how contingencies work is essential for a smooth and successful home buying or selling experience. By carefully reviewing and negotiating contingencies, both parties can ensure their needs are met and the sale goes smoothly. So next time you see the term “contingent” in a real estate listing. You’ll know exactly what it means and why it’s an important factor to consider. Happy house hunting!