What Does Contingent Mean in Real Estate?

Once in a while, there’s that one kind of house that you’re just head over heels about. Funny enough, you may not even realize that you need a house until you come across your dream home. Once you set your mind on buying it, you may want to consider contingencies to protect yourself financially. Whether you’re acquiring a home to live in or it’s an investment property, contingencies can help you evade a costly mistake.

Contingencies tend to give you higher authority over the home-buying process with an opt-out clause in case things don’t go as expected.  Buying a house involves getting into a legally binding contract with the seller. With a profound understanding of contingencies, you can begin the home-buying negotiations with greater confidence.

What Does Contingent Mean in Real Estate?

In a real estate contract, contingent means that a buyer has initiated a purchase offer and the seller has accepted the offer. Notwithstanding, the contract is conditional upon some things occurring, and the deal’s closing will not occur until those things have happened. If the set things fail to occur within the stated time, the deal is canceled without any legal consequences. Any contingency ought to be clearly stated so that both the buyer and seller have a better understanding of the terms.

Here are a few examples of the most common contingencies for buyers:

1.    Inspection Contingency

A home inspection contingency means that if the inspector finds problems with the home during the inspection, you can walk away from the contingent offer as a buyer. The inspector typically checks both inside and outside the home for any signs of damage or wear and tear. The inspection takes place within days of creating a contingent offer so that you can decide if to continue or walk away from the sale.

2.    Mortgage Contingency

A mortgage contingency is a clause written into a property sale agreement that can terminate the sale if certain conditions aren’t met. This clause offers protection to both the buyer and the seller in case the buyer doesn’t secure mortgage financing. It also specifies when an official approval for a mortgage is to be made. If any party backs out before the mortgage money is secured, then there are no penalties.

3.    Appraisal Contingency

When applying for a loan, the lender may decide to hire a third-party appraiser to assess the property’s fair market value to make sure that their investment in you doesn’t go to waste. The appraisal contingency makes sure that you’re safe if the property’s sale price is a bit higher than the property’s appraised value. The contingency includes dates by which you ought to alert the seller in case of any inconsistencies between the appraisal value and the selling price, giving them an opportunity to negotiate the price.

4.    Home Sale Contingency

This means that buying a new home is contingent on your ability to sell your current home. The contingency states that if you have sold your home by a certain date, you can buy the new home, and the deal will continue. If you fail to sell by that date, the deal is either extended or canceled by the seller.

A seller can also include some clauses to protect themselves, and the most common is a “kick-out” clause.

What’s A Kick-Out Clause?

A kick-out clause seeks to protect the seller by giving them a right to continue marketing their home if they receive an offer with contingencies that need to be met. If the buyer delays the process because they are unable to sell their home, the seller can put this clause into effect. The clause gives the seller a chance to switch to a buyer capable of completing the sale.

Final Thoughts

Whether for the buyer or seller, contingencies in real estate can have a huge impact on the sale. As a buyer, they can give you a lot of protection in the home buying process. And having a better understanding of the most prevalent contingencies and what they stand for gives you a rising awareness of what to leave out and what to include.

Ready to learn the ins and outs of contingencies in real estate? Let’s connect to chat about your real estate questions or needs.