When searching for a new home, buyers encounter various listing statuses, one of which is “contingent.” This status indicates that a seller has accepted an offer and signed a formal sales contract. However, the finalization of the sale is not guaranteed. It depends entirely on a set of conditions outlined within that contract being successfully satisfied.
Understanding the Contingent Status
The contingent status represents a delicate phase in the real estate transaction. Although the seller has committed to the current buyer, the contract includes protections allowing the buyer to legally exit the agreement if certain requirements are not met. The property is removed from the general pool of available homes on the Multiple Listing Service (MLS). The seller is obligated to give the current buyer a defined period to fulfill these contractual obligations.
Contingent, Pending, and Active Statuses
The “Active” status signifies that a home is fully available and openly accepting offers. Once a seller accepts an offer, the status typically changes to “Contingent,” marking the period where the buyer works to satisfy the contractual conditions. During this time, the seller may still entertain or accept backup offers in case the current deal fails.
The “Pending” status represents the final stage before closing, indicating a much higher certainty of sale. A property moves to Pending once all conditions and protections for the buyer, known as contingencies, have been successfully met or formally waived. At this point, the contract is considered firm. Sellers rarely accept further offers because the transaction is considered imminent.
Common Types of Contingencies
Contingencies included in a purchase agreement are designed to protect the buyer’s financial interests and provide legal recourse to withdraw if unexpected issues arise. These conditions define the necessary steps the buyer must take before the sale can be finalized. The timeframes for satisfying these requirements are specified directly in the contract.
Inspection Contingency
This common clause allows the buyer to hire a licensed professional to conduct a thorough examination of the property’s structure and systems. If the inspection report reveals significant defects or repair needs, the buyer can request repairs, negotiate a price reduction, or terminate the contract without losing their earnest money deposit. This protection ensures the buyer is fully aware of the physical condition of the property before closing.
Appraisal Contingency
Lenders require an appraisal to ensure the home’s value supports the amount of the loan being requested. If the independent appraisal comes in lower than the agreed-upon purchase price, this contingency allows the buyer to renegotiate the price with the seller or walk away from the deal. It prevents the buyer and the lender from overpaying for the asset.
Mortgage Financing Contingency
The financing contingency provides the buyer with a set period to secure formal approval for their home loan. If the buyer is unable to secure the necessary mortgage commitment, they can cancel the contract without penalty. This clause shields the buyer from being forced to purchase the home if their financial plans fall through.
Sale of Current Home Contingency
This less common, yet sometimes necessary, condition dictates that the buyer must successfully close on the sale of their existing residence before proceeding with the purchase of the new property. Sellers often view this contingency less favorably because it adds a significant layer of uncertainty and a potentially long delay. This condition is often included when a buyer cannot afford to carry two mortgages simultaneously.
Making an Offer on a Contingent Home
While a property is listed as contingent, interested parties can still submit a formal backup offer to the seller. This offer is not immediately binding but is placed in a secondary position, ready to become the primary contract if the first deal collapses. Sellers often consider backup offers, especially if the current contract involves risky contingencies like the sale of the buyer’s current home or a lengthy financing timeline.
Structuring a strong backup offer involves minimizing or eliminating the buyer’s own contingencies to make the deal more appealing to the seller. For example, a buyer might offer a higher earnest money deposit or a shorter inspection period to demonstrate commitment and speed. An offer with a quick closing date and a willingness to waive the appraisal contingency can often position a buyer favorably. The seller can legally accept a backup offer, which is then automatically activated should the primary contract fail and be dissolved.
What Happens When Contingencies Fail
If a buyer is unable to satisfy a contractual condition, such as the appraisal coming in too low or the home inspection revealing major defects, the contract is typically dissolved. The buyer is protected by the contingency and can legally withdraw from the transaction without facing a penalty. In most cases, the earnest money deposit provided when the offer was accepted is returned to the buyer.
Once the contract is formally terminated, the property’s status reverts. If the seller has a strong backup offer in place, the property may immediately move to Contingent status under the new buyer’s contract. If no backup offer is available, the property is typically returned to an Active status on the MLS, making it fully available for all prospective buyers to submit new offers.