A “contingent” status in real estate signifies that a seller has accepted an offer from a buyer, but the finalization of the sale remains dependent on specific contractual conditions being satisfied. This status confirms a signed purchase agreement exists, but the transaction is not yet guaranteed to close until all protective requirements outlined in the contract are met or formally waived. This arrangement essentially places a temporary hold on the property, acknowledging that a deal is in place while providing a defined period for the buyer to conduct their final due diligence.
Defining the Contingent Status
The contingent status places a property into a unique contractual limbo. It is technically off the active market, but the deal is subject to risk until certain stipulations are fulfilled. The seller has committed to the buyer, but the buyer retains the contractual right to terminate the agreement without penalty if the negotiated conditions are not met within the specified time frame.
Standard purchase agreements define a fixed time limit, often spanning 30 to 60 days, to satisfy these protective clauses. Should any condition fail, the buyer can typically walk away and reclaim their earnest money deposit, the sum of money paid to show good faith at the time of the offer. The contingent status signals to other potential buyers that the transaction is not yet complete.
Common Types of Contingencies
Inspection Contingency
The inspection contingency grants the buyer the right to hire licensed professionals to examine the property’s condition, covering areas like the structure, electrical systems, plumbing, and HVAC. The typical window for this examination and subsequent negotiation is often between 7 and 15 days following the contract’s acceptance. If the inspection report reveals significant defects, the buyer can negotiate with the seller for repairs, request a price reduction, or receive a credit at closing. If the parties fail to agree on a resolution, this contingency allows the buyer to withdraw from the purchase contract and retain their earnest money.
Financing Contingency
A financing contingency makes the purchase agreement dependent on the buyer securing the necessary mortgage loan amount by a specific date outlined in the contract. This clause protects the buyer from being obligated to purchase the home if their loan application is ultimately denied by the lender. For instance, if a buyer is pre-approved but a change in their employment or credit history causes the final loan commitment to fall through, they can terminate the contract. Without this protection, the buyer would risk losing their earnest money deposit if they could not secure the funds required to close the transaction.
Appraisal Contingency
The appraisal contingency ensures that the property’s value, as determined by a licensed appraiser, meets or exceeds the agreed-upon purchase price. Lenders will not finance a loan for more than the appraised value, meaning a low appraisal can jeopardize the sale. If the property appraises for less than the contract price, the buyer generally has three options: renegotiate the price with the seller, pay the difference in cash, or use the contingency to cancel the contract without penalty. This clause shields the buyer from overpaying.
Sale of Existing Home Contingency
The sale of existing home contingency means the buyer’s ability to close on the new home is conditional upon the successful sale and closing of their current residence. It is commonly used by buyers who need the equity from their existing home to fund the down payment or qualify for the new mortgage. Sellers often include a “kick-out clause” in the contract. This clause permits the seller to continue marketing the property and accept a second, more favorable offer, typically one without a sale contingency. The original buyer is then given a short window, often 24 to 72 hours, to either remove their sale contingency and proceed or allow the contract to terminate.
Contingent Versus Pending: Understanding the Key Difference
The difference between “contingent” and “pending” status reflects the level of risk remaining in the transaction. A contingent status indicates that one or more contractual conditions are still active, meaning the risk of the deal collapsing is elevated. During this phase, the seller may continue to show the property and solicit backup offers in case the current buyer fails to satisfy their requirements.
The status shifts to “pending” once all major contingencies have been successfully met, waived, or removed from the contract. At this point, conditions protecting the buyer, such as inspection, financing, and appraisal, have been satisfied, and the sale is moving forward to the final closing date. While a pending deal can still fail due to issues like a title problem or final loan underwriting concerns, the likelihood of termination is significantly lower.
What Happens When a Contingency Fails or Is Met
The resolution of the contingent phase dictates the transaction’s next steps. If a buyer successfully meets all requirements or formally waives a condition, the contract remains valid and the property status transitions to pending, signaling the final stretch toward closing. This confirms the buyer has completed due diligence and is prepared to finalize the purchase.
When a contingency fails, such as a low appraisal or denial of financing, the buyer is typically entitled to terminate the agreement. Contract termination usually occurs without penalty, and the buyer receives a full refund of their earnest money deposit. However, if a buyer opts to waive a contingency to make their offer more attractive and then fails to close, they may forfeit their earnest money to the seller.
Implications for Buyers and Sellers
For sellers, accepting a contingent offer means committing to a buyer while maintaining flexibility to manage risk. Sellers should actively monitor the buyer’s progress against established deadlines for inspection, appraisal, and financing. In competitive markets, sellers may choose to continue showing the property and accepting backup offers in case the primary deal falls apart.
Buyers utilize contingencies for risk management against unforeseen problems with the property or their financing. However, in highly competitive housing markets, buyers face pressure to waive certain contingencies, such as inspection or appraisal, to make their offer more appealing. While waiving a contingency can increase the chances of acceptance, it increases the buyer’s financial exposure and the risk of being forced to close on a problematic property or pay a cash difference for a low appraisal.