In the realm of real estate, the term ‘contingent’ carries significant weight. It denotes a property that is under contract but awaits the fulfillment of certain conditions before the sale can be finalized.
This article delves into the intricacies of contingencies in real estate transactions, highlighting common examples like financing, appraisal, and home inspection.
Additionally, it clarifies the distinction between contingent and pending statuses, explores the option of submitting a backup offer, and sheds light on the duration of contingent status and associated obligations.
Definition and Meaning of Contingent
In real estate terms, the phrase ‘contingent’ refers to a property that is under contract with certain conditions or requirements that need to be met. It means that an offer has been accepted by the seller, but the sale is contingent on specific conditions being fulfilled.
One common type of contingency is the financing contingency, which protects the buyer in case they are unable to obtain financing for the property. This contingency gives the buyer the option to terminate the contract if they are unable to secure the necessary funds.
Another significant contingency is the appraisal contingency, which allows the buyer to back out if the property does not appraise for at least the purchase price. This contingency protects the buyer from overpaying for a property that may not be worth the agreed-upon price.
These contingencies ensure that the buyer has an ‘out’ if certain conditions are not met, providing them with protection and allowing them to make informed decisions about the purchase. By including these contingencies in the contract, buyers can have peace of mind and avoid potential financial losses.
Common Contingencies in Real Estate
Common contingencies in real estate transactions include:
The financing contingency, which protects the buyer if they are unable to obtain financing. It allows them to terminate the contract and receive their earnest money deposit back.
The appraisal contingency, which allows the buyer to back out if the property does not appraise for at least the purchase price. This protects the buyer from overpaying for the property.
The home inspection contingency, which gives buyers the opportunity to have the property inspected by a professional and back out of the deal if they are not satisfied with the results. This protects them from purchasing a property with hidden defects or issues.
The sale of home contingency, which allows the buyer to back out if their current home does not sell within a specified time period. This protects them from being stuck with two mortgages.
Contingent Vs Pending
The distinction between contingent and pending in real estate terms lies in the fulfillment of conditions or requirements after an offer has been accepted. Here are the key differences and considerations:
Contingent status: When a property is listed as contingent, it means that an offer has been accepted, but there are still conditions or requirements that need to be met before the sale can proceed. These conditions could include financing approval, home inspections, or the sale of the buyer’s current home.
Pending status: On the other hand, a property listed as pending means that all contingencies have been met, and the sale is in the final stages of being processed. The transaction is awaiting closing, and the property is considered to be under contract with no further conditions to be fulfilled.
Considerations: Buyers should be aware that while a property is in contingent status, there is still a possibility that the deal may not go through if the contingencies are not met. However, once a property is marked as pending, it is highly unlikely for the sale to fall through, barring any unforeseen circumstances.
Submitting a Backup Offer
Buyers have the option to submit a backup offer on a house that is already under contract with contingencies. This means that if the original deal falls through, the backup offer becomes active and the buyer has the opportunity to purchase the home.
Submitting a backup offer can have several benefits. Firstly, it allows buyers to potentially secure a property that they are interested in, even if it is already under contract. Secondly, it gives buyers a sense of security, knowing that they have a backup option in case the original deal doesn’t go through. Lastly, submitting a backup offer can help buyers avoid the disappointment of losing out on a property that they had their heart set on.
Duration of Contingent Status and Obligations
The duration of contingent status and the obligations associated with it can vary depending on the specific contingencies outlined in the real estate contract. Here are three key points to consider:
Length of contingent status:
The length of time a house remains in contingent status depends on the nature of the contingencies. If the sale is contingent on financing, it may take a few weeks for the buyer to secure a loan. On the other hand, if the sale is contingent on the buyer selling their current home, it could take months for the transaction to be completed.
Even in contingent status, the buyer is still obligated to purchase the property if the contingencies are met. This means that they must actively work towards fulfilling the conditions set forth in the contract, such as obtaining financing or selling their existing home.
Once the contingencies are met, the buyer must take steps to remove them through renegotiation with the seller. This typically involves providing documentation or proof that the conditions have been satisfied. Only after the contingencies are removed can the sale proceed to closing.
It is important for both buyers and sellers to understand the duration of contingent status and the corresponding obligations to ensure a smooth transaction.