What Does Contingent Mean in Real Estate?

When you're looking to buy a home, it can be hard to know your chances just by looking at the listing. This is because homes have different listing statuses, ranging from "active" (still for sale) to "sold" (already bought). These statuses can even have different names depending on where you are. Plus, the information isn’t always accurate or up-to-date.

As a leading national mortgage lender, Total Mortgage has come up with a comprehensive guide to real estate contingencies. So, let's just get started with the meaning of contingency in the real estate market. 

 

The Meaning of Contingent in Real Estate 

If a home is listed for sale and says "real estate contingent," “contingent,” or “contingent sale,” it means the seller has accepted another offer (listed as CTS). The seller of the property you’re interested in has agreed to a contract with a buyer. However, the buyer can still back out of the deal without losing their earnest money deposit if certain contingencies specified in the contract are met or if a valid reason arises to dissolve and nullify the agreement completely.

 

How Do Buyers Get Protected by Including a Contingency? 

When contingencies are included in a home purchase contract, buyers (and sometimes sellers) have the right to exit the contract if a significant issue arises before closing. But why would the seller agree to this?

When buyers sign a purchase contract with the seller, they often place an earnest money deposit into escrow. This deposit shows the seller that the buyer is serious about purchasing the home, compensating the seller for taking the property off the market. This way, the seller is assured that the buyer won’t simply walk away if they find another home they like better. However, the contingency clauses in the purchase contract allow the buyer to back out for specific reasons—such as failing to secure financing, issues found during a home inspection, or problems with the title—while still getting their earnest money returned.

 

8 Common Real Estate Contingencies: 

There are some contingencies in real estate. These are the conditions buyers typically include in their sales contracts. 

1. Disclosure Contingency 

By state law, sellers might have to reveal specific details about their houses before or after having a buyer under contract. For example, if any problems, such as damage or flaws, are revealed about the plumbing, roof, or foundation, the seller must notify the buyer in writing. If the disclosures are a problem, then that might allow a buyer to back out (using the disclosure contingency).

 

2. Home Inspection Contingency

Including home inspection contingencies in all sales contracts is a good idea for buyers. This contingency provides you with a brief opportunity to employ an expert home inspector who will inspect the state of the house and tell you how serious any red flags are.

Based on the inspector's findings, you might buy the home as-is, negotiate repairs or cash credit for repairs, or exit without any penalty amount. You could say that the contingency will be satisfied unless repairs exceed a particular dollar amount you would pay (without jeopardizing your mortgage approval).

 

3. Appraisal Contingency 

An appraisal contingency will give you a way out if an appraiser determines that the house isn't worth your offer. This is important when you need a mortgage, as lenders require the property to be valued at least as much as the loan amount. A buyer making an all-cash offer might not include this contingency because they chose to compete in this manner.

 

4. Mortgage Contingency 

A mortgage contingency (also known as a financing contingency) gives the buyer an option to exit if they cannot obtain funding for the home.

A buyer can get preapproved for a mortgage before making an offer so that the seller will have greater confidence in the deal closing. However, the property must also be approved by the lender, not just the borrower, so this contingency is crucial in all but cash transactions.

Also, when buyers unknowingly make mistakes that can affect their mortgage approval (such as getting a new loan before closing), they can just be unlucky, like being fired while under contract, thereby losing their loan approval.

 

5. Title Contingency 

If there appears to be no undisputed chain of title and the potential defect cannot be easily remedied, this contingency may free a buyer from their obligations. This is also important for all-cash buyers to avoid post-closing ownership disputes.

Additionally, your lender will need a clear title when you buy this property as a buyer. Title insurance is something that all wise buyers should have.

 

6. Home Sale Contingency 

A home sale contingency allows the buyer or seller to cancel a purchase agreement if that party's property isn't under contract by an agreed-upon date. For the buyer, it would say that they will only have to close if their house sells. Then, the seller could still field additional offers, and their listing may be "contingent with kick-out," “active with kick-out," or have similar terms such as "bumpable buyer."

 

7. Homeowners Insurance Contingency 

Due to the risk of natural disasters, some properties are just as expensive or even uninsurable for insurers due to loss history, which is particularly applicable in disaster-prone states like Florida. Almost everyone wants to protect their house with homeowners insurance. If you have a mortgage, the lender will demand it. Certain properties would need to get flood and windstorm insurance. 

Buyers should use an insurance contingency here; it provides an option to back out if the cost of insuring the home is much higher than expected.

 

8. Homeowners Association Contingency 

Reviewing the group's bylaws, meeting minutes, and financial standing is crucial before closing on a house that is part of a homeowners association (HOA).

This contingency lets you exit the contract if you discover they won't be able to rent property, have multiple pets, or need to park a truck in the drive—anything important enough but against something governed by an HOA. It also enables buyers to obtain a refund of their earnest money if they discover that the association is in poor fiscal health.

 

Contingent Status Types: 

The first sign of contingent for real estate – typically the most common – is in a likely location, such as inside their home or on top of an existing yard sign indicating if the unit has been contracted but not sold. Some of the status types you might see are: 

 

1. Contingent: 

The buyer has not met all contingencies in the purchase agreement. If the offer is accepted, then you may be able to place a backup one. This status is also known as “under contract.”

 

2. Active Contingent: 

The seller has accepted an offer with buyer contingencies but will accept backup offers if the deal fails. These listings could also say "active under contract" or “contingent: continue to show," signaling that the seller is open to having agents bring backup buyers in for a look. If they aren't, it could be listed as "contingent: no show."

3. Contingent with Kick-Out:

This real estate contingent means the home seller has agreed to accept an offer from a contingent buyer (the buyer may still need to sell their own house), but if another buyer comes forward with what appears to be a less risky offer, then this original contract would not stand up and can be terminated.

However, this seller is still taking offers to open that idea. The contingent buyer usually has a set period (often 48-72 hours) to remove their contingencies and proceed with the purchase before the seller can accept the new offer.

If the offer doesn’t have a kick-out clause, the home might be listed as “contingent with no kick-out.” They might accept backup offers, but they won't go under contract on any new offers unless the buyer fails to meet their contingencies.

4. Contingent Probate: 

This type of listing is one in which the seller has accepted an offer, but the probate court must approve the sale before it can close. Next time, another purchaser could attend a court hearing and offer more for the house. This status occurs when the property of a deceased person is being sold as part of settling their estate.

5. Short-Sale Contingent: 

The seller has accepted a buyer's offer, but the sale is contingent upon approval by the lenders & lienholders with a secured interest in the property.

Pending: 

The buyer is no longer subject to any contingencies in the purchase agreement. The closing should occur, and the best you can do is to try again to buy a property. But if this home is something you would want, it doesn't hurt to contact the seller's agent and let them know if a deal falls through at the last minute. There may even be a note on the listing that reads "pending — taking backups" if it is an option.

Pending – Over Four Months: 

This status may show up if a transaction takes a long time to complete or if the listing agent fails to update the status of the sold property.

 

Contingent Vs. Pending – Decoding the Difference 

So, you know what contingent means. A property listed as "contingent" is not quite as far along in the sale process as one listed as "pending." For an altogether time-consuming contingent listing, maybe only one offer is accepted, and the buyer just went under contract and hasn't satisfied any contingencies. Otherwise, every contingency might have been satisfied, but the status may not have been updated to "pending" yet. 

Pending status means the buyer has met all the contingencies in their purchase contract and is nearing closing. However, in some cases, the sale transaction may already be complete for a home listed as "pending," but the property's status hasn’t been updated yet.

 

Conclusion

Understanding contingencies in real estate can help you manage the home-buying process with confidence. Whether you're a first-time buyer or an experienced investor, knowing these terms is essential. Ready to take the next step in your home-buying journey? Contact Total Mortgage today to get expert guidance and secure your dream home!