What does contingent mean in real estate? These are clauses in a contract that the buyer or seller must do in order to close the transaction. Most of these are to protect the buyer and seller.
- Contingent contracts are under contract but not sold
- The most complicated contingencies are home sale clauses
- These clauses cause fewer than 5% of contracts to close
If you worry about getting into a deal with a contingency you should remember that most of these clauses protect the parties involved. Hire a professional realtor to guide and protect you through the process. Get a home inspection when you list the house. Get preapproved so you know exactly how much you can afford if you are a buyer.
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Does Contingent Mean Sold?
Contingent does not necessarily mean sold in real estate. When a seller accepts an offer with a contingency, the property is under contract. It will close unless the party uses the clause.
- A pending contract is dependent on a contingency
- Contingencies last until the obligations are met
This means that the underlying issue must be resolved before the house can be sold. The deal is pending until then. It is a subtle difference, but it is important.1
Difference Between Pending and Contingent
The difference between pending and contingent is subtle, and it depends on the type of clause in the contract. A contingency clause allows a party to the contract to back out of the deal without penalty for that specified issue. A property sale is pending until the parties resolve all of these issues and the contract can close.
- Almost all contracts have some contingencies
- Agents may continue to show a property and not mark it pending until the buyer and seller resolve all major issues
If you look at a home that the agent marked contingent in the listing, the seller means that they have a contract but there are major issues that need to be resolved. If the seller continues to show the house it means they are not confident the deal will close. Most of the time when the listing says a property is pending then all parties expect the contract to close, and the seller will stop showing the house.2
How long is a contingency on a house?
A contingency on a house lasts until the parties meet requirement in the contract. There are clauses in almost all contracts for common, necessary contingencies.
- Buyers generally have a home inspection done soon after the contract, and the inspector will have a report ready within a week.
- Mortgage approvals usually take anywhere from 30 – 60 days.
- A title search may take around 30 days as well.
Generally, the mortgage paperwork takes the longest and will be the last issue resolved before closing. If the seller is buying another house that may last right up to the closing, because they may need the money from the sale of one property to buy the other.
Biggest Reason for Contingent Offer
The biggest reason for making an offer contingent in a contract is to sell a property before buying another one. This is the trickiest because other contingencies are really little more than insurance. For instance, the buyer assumes that the house does not have any major structural problems, but there is a clause that protects against the few cases where there is. Likewise, we assume that the seller has a clear title, but there is a clause just in case they can’t produce. A home sale contingency is different, though.
- It depends on the execution of another, separate contract with another party
- They are always complicated for lawyers and title companies
- Timing is critical because the seller needs money from one sale to execute another.
Because these are so tricky, a seller often continues to show a house with these clauses, even though they resolved all other issues. Even so, you shouldn’t worry too much about these clauses, because they are very common. Most will close because so many parties, not the least of which are the buyer and seller, really want the sale to happen.
Contingent Offers Fall Through
Contingent offers fall through regularly, but surprisingly not much more than offers that don’t have contingencies. They are common, and agents know how to handle them.
- Overall, the rate of real estate contracts that don’t close because of contingencies is 4.3%
- This is up from about 1.3% two years ago
- These percentages include all types of issues that kill a deal
So, inspection issues, title issues, mortgage issues, and even house sale clauses combined kill fewer than five percent of real estate deals.
Most contingencies in real estate contracts mean insurance for the seller and buyer. The most common types: title, mortgage, inspection only activate if there is a major problem. While these are important, they rarely prevent closings. Home sale contingencies are more complicated, but you should not worry and forego a good contract because of this issue. Remember that more than 95% of contracts close.
Finally, you minimize risks if you get a home inspection before you put the house on the market. Also, ask your potential buyers to provide preapproval from their lenders.