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Buying a home can be complicated — especially if it’s your first time. Fortunately, familiarizing yourself with common terms used in the homebuying process, such as “contingent” and “pending,” can help make the process easier.
Here are some important terms you’ll want to know when buying a house so you can move forward confidently with your purchase.
Table of contents
- What’s a contingent offer on a house?
- Types of real estate contingencies
- How do you make a contingent offer on a home?
- Pros and cons of contingent home offers
- Contingent vs. pending offer: What’s the difference?
- What happens if your contingent offer falls through?
- Contingent offer FAQs
What’s a contingent offer on a house?
A contingent offer on a house means the deal can only be closed if certain conditions are met. Both buyers and sellers can ask for contingencies.[1] Contingencies allow a party to cancel or renegotiate the deal if either party doesn’t meet agreed-upon conditions.
Imagine you can only buy a new house if you sell your current home and get a mortgage from the bank. You could make a contingent offer on a new house that’ll only go through if you meet these two conditions.
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How do contingencies protect buyers?
Contingencies provide essential protections for homebuyers. If you make an offer on a home but can’t secure the necessary financing, a financing contingency allows you to back out of the deal without financial penalties. If you have an inspection contingency and a home inspection reveals major issues, this contingency allows you to request repairs or back out of the offer altogether.
Types of real estate contingencies
You’ve already seen examples of financial and inspection contingencies, but here’s a deeper look at your options.
Appraisal contingency
Appraisal contingencies are one of the more common types of real estate contingencies. They protect you by ensuring the property is worth the agreed-upon price.
If the home is appraised at a lower value, you can ask the seller to lower the price. You may also pay the difference out of pocket, or you can back out of the deal without losing your earnest deposit.[2]
An earnest deposit is a small portion of your down payment you put into escrow to show the seller you’re serious about making a purchase.
Financing contingency
A financing contingency makes a prospective home sale dependent upon the buyer being able to secure financing for the purchase. This allows you to investigate your financing options and obtain a loan commitment before finalizing the sale, protecting you from having to pay out of pocket if you can’t get a mortgage.[2]
Learn More: Everything You Need to Know About Home Loans
Home sale contingency
A home sale contingency allows you to back out of the sale if you can’t sell your current home. You’d typically use this contingency when you need to sell your existing property so you can afford to purchase a new one.[3]
Check Out: How Much Money Do You Need to Buy a House?
Inspection contingency
An inspection contingency ensures a home inspector can conduct a home inspection before the sale is finalized. This is to protect you from purchasing a property with major, undisclosed, or unidentified defects.
If the inspection uncovers any issues, you can request the seller repair or address them. If the seller is unwilling to address the problems, you can back out of the sale with no penalty.[3]
Title contingency
A title contingency ensures the property has a clear and marketable title and that the seller has the legal right to sell the property to you. Some properties may not have a clear title if a tax authority or contractor placed a lien on the property because the owner failed to make payments.[4]
To avoid unknowingly buying a property without a clear title, hire a title company to conduct a title search. The title company will thoroughly examine public records to ensure the title is clear of any liens, judgments, or other encumbrances.
If any issues are discovered during the title search, you can request that the seller address them before the sale is finalized, or you can back out of the sale with no penalty.
Contingencies in a seller’s market
Including contingencies in your offer isn’t always beneficial — especially in a seller’s market. If a seller has multiple offers on their home, they’re less likely to accept an offer with strings attached.
You can waive contingencies to strengthen your offer, but remember that those contingencies are protecting you from potential future complications.[2]
How do you make a contingent offer on a home?
Working with a real estate agent is the first step in making a contingent offer on a home. Your agent can help you understand the various available contingencies, select the appropriate ones for your situation, and draft an offer.
Present this offer to the seller as soon as possible — as they may have other offers on the property — and be prepared to negotiate with the seller if they’re hesitant to accept an offer with contingencies. You may need to make concessions to convince the seller to accept your offer, such as increasing your bid or removing certain contingencies.
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Enter your ZIP codeGet My QuotesWhat happens when the seller accepts a contingent offer?
Once the seller accepts your offer, move quickly to activate your contingencies. For example, if you included inspection, appraisal, or title contingencies in your offer, you must hire a home inspector, appraisal, and title company.
If you included a financing contingency in your offer, you must work with your lender to finalize your mortgage. This may require completing an application and providing additional documentation to the underwriter.
Activating contingencies can be stressful and time-consuming, but you’re not responsible for handling it all on your own. Your real estate agent and lender will help you navigate this process.
Read More: Best Questions to Ask When Buying a House
Pros and cons of contingent home offers
Understanding the advantages and disadvantages of contingencies can help you decide which type of offer makes sense for you.
Pros
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You can properly time buying and selling. Including a home sale contingency in your offer allows you to make an offer on a home before selling your current property. This is particularly helpful in a competitive market where homes are selling quickly.
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You have an exit plan if you need it. Contingencies provide you with a way out if a property is appraised for less than the purchase price, an inspection reveals major issues and the seller is unwilling to make repairs, you can’t get financing, etc.
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Contingencies give you more negotiating power. By offering to purchase a home only if certain conditions are met, you may be able to negotiate a better deal. For example, the seller might be willing to make necessary repairs if they know you can walk away from the deal.
Cons
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Contingencies can delay the buying process. When you make a contingent offer, you’re essentially putting a hold on the property while you or the seller fulfill certain conditions. This can cause delays in the buying process, which can be frustrating for both parties.
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You might miss out on a property. Sellers may not take contingent offers as seriously, and they may be more interested in offers that don’t have any conditions attached. This can put you at a disadvantage, as you may have to compete with other buyers who are making non-contingent offers.
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It can give the seller more bargaining power. A seller may try to negotiate for a higher price in exchange for agreeing to your contingencies. This can result in paying more for the property than you originally intended.
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Contingent vs. pending offer: What’s the difference?
When buying a home, the transaction can go through several different stages, including contingent and pending. While these terms may seem similar, there are some key differences between the two.
When a sale is contingent, the seller has accepted an offer, but it can fall through if the parties don’t fulfill the included contingencies. Usually, the seller will keep the listing active in case the deal falls through.
A pending listing means all the necessary conditions have been met and the sale is in the final stages of completion.[5]
What happens if your contingent offer falls through?
If your contingent offer falls through, you may be unsure about what to do next. First, assess why the offer fell through. If it was due to issues with financing, you might need to reconsider your budget, improve your credit, or work with a different lender.
If the deal fell through because of issues with the appraisal or inspection and the seller wasn’t willing to work with you on the price or repairs, you may need to reconsider the contingencies in your offer. You may need to relax some of your contingencies to entice a seller — but be sure you’re not leaving yourself exposed to significant risk.
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Enter your ZIP codeGet My QuotesContingent offer FAQs
Buying a home is challenging, and understanding contingencies is a key part of that process. Below, you’ll find answers to some common questions about contingencies, and if you’re looking for even more home insurance information, check out How to Buy Homeowners Insurance in 7 Easy Steps.
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Do you have to make a contingent offer on a home?
No. You don’t have to make a contingent offer on a home. While making a contingent offer can provide some protections for homebuyers, it’s not a requirement. In fact, some buyers choose to make a non-contingent offer if they feel confident they’re ready to move forward with the sale no matter what.
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Is it a good idea to waive contingencies?
It depends. In a strong seller’s market, making a contingent offer on a home may put you at a disadvantage, as sellers might prioritize offers without any strings attached. However, the decision to waive contingencies should not be taken lightly.
By waiving contingencies, you essentially agree to purchase the property regardless of any potential issues that may arise. This could include problems with financing, appraisal, or even major structural issues in the home. Consider how much risk you’re willing to take before waiving any contingencies.
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Can you make an offer on a home that’s contingent?
Yes. You can make an offer on a home in contingent status. However, the likelihood of the offer being accepted depends on the specific terms of the contingency and the seller’s willingness to entertain additional offers.
The initial offer will take precedence if all contingencies are satisfied, but making an offer while the initial deal is contingent can put you first in line if that deal falls through. This requires you to submit an offer that’s better than any other offers the buyer might receive.[5]
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Do sellers have to accept a contingent offer from a buyer?
No. Sellers aren’t legally obligated to accept a contingent offer from a buyer. In fact, they have the right to reject any offer that doesn’t meet their specific needs and preferences. In some cases, sellers may find it more advantageous to accept a non-contingent offer, even if it’s slightly lower than a contingent offer, as it reduces the work they need to do prior to selling.
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How often do contingent offers fall through?
It’s a relatively rare occurrence. As of March 2023, roughly 80% of offers include either an inspection contingency, appraisal contingency, or both, according to the National Association of Realtors. Of those, only 5% of deals with contingencies were terminated.[6]
The likelihood of a contingent offer falling through depends largely on the nature of the contingency. For example, if the contingency is based on the buyer getting financing and they have severe credit problems, the sale may be more vulnerable to delays or complications.
Sources
- Homelight. "Is a Home Sale Contingency Clause Always Necessary? Here Are Your Options." Accessed May 1, 2023
- Rocket Mortgage. "What Is An Appraisal Contingency?." Accessed May 1, 2023
- Rocket Mortgage. "Contingent: A Guide To What It Means In Real Estate." Accessed May 1, 2023
- Rocket Mortgage. "House Title: What You Need To Know." Accessed May 1, 2023
- Rocket Mortgage. "Contingent Vs. Pending: What’s The Difference?." Accessed May 1, 2023
- National Association of Realtors. "Realtors Confidence Index Survey." Accessed May 1, 2023
