What Does Contingency Mean in Real Estate + Types of Contingencies

While you’re searching for a home, you will come across a variety of different terms of “statuses” associated with a listing, such as under contract, pending, or contingent. Under contract and pending are pretty self-explanatory, but what about contingent? According to Merriam-Webster, contingent is defined as “dependent on or conditioned by something else” or “likely but not certain to happen.”

But what does contingent mean when it comes to real estate?

 

Contingency in Real Estate

In real estate, when a home is listed as “contingent,” it means the seller has accepted an offer from the buyer, as long as certain criteria are met. In other words, the success of the sale is contingent upon some conditions, such as the home inspection producing favorable results, the buyer being able to sell their current home, or the buyer receiving confirmation of financing.

So as you can imagine, most contingencies are favorable for the buyer, who can ensure they have all their ducks in a row before moving forward — or they are not liable for any major issues unveiled during an inspection. Contingencies can certainly protect a buyer’s liability, but they come with some risks! Namely, there’s the possibility of a seller skipping over an offer because they may have other offers on the table without “strings attached,” especially in a competitive market.

Let’s take a look at the several different types of contingencies in real estate, including some of the pros and cons of each.

 

Types of Contingencies

Home Inspection Contingency

One of the most common types of contingencies is a home inspection contingency, which simply means that the sale is contingent on a home inspection that doesn’t unveil any major issues, such as electrical, structural, or plumbing issues, or any other major problems. If issues are found, there could be grounds for renegotiation of the price or negotiation of who will cover the cost for the repairs. Also, depending on the severity or the terms of the contract, the inspection could produce results that allow the buyer to back out of the deal completely. However, just because issues are found, this doesn’t necessarily mean the deal is off the table! There is always the opportunity for the buyer and seller to meet in the middle and decide on a good path forward that satisfies both parties. The home inspection contingency is just in place to give you the space and legal protection to have those conversations if unforeseen issues do arise.

 

Home Sale Contingency

A home sale contingency means the sale of the new home is contingent upon the sale of the buyer’s current home. A buyer might put a home sale contingency in place to avoid the possibility of owning two properties at once and therefore being responsible for two mortgages. A successful sale gives the buyer a bit more peace of mind — not to mention, a bit more cash on hand to cover the down payment, closing costs and other expenses associated with buying a house. In a competitive market where homes are selling relatively quickly, buyers might be able to skip this contingency altogether. Plus, it can be risky in a seller’s market, as the seller could skip over any offers with contingencies and move onto a more eager buyer without any stipulations in place.

 

Mortgage Contingency

Also called a “financing contingency,” a mortgage contingency means the buyer has a certain amount of time to secure financing from their lender. This arrangement promises that funding will be in place by closing day, and if not, the sale will not go through. In order to avoid this type of contingency as a buyer, it’s important to get pre-approved, which involves an in-depth look at your financial status to find out how much house you can afford and how much your lender will approve you to borrow. 

Work with your very own, dedicated loan officer at FNBO on your pre-approval. They will guide you through the mortgage process and answer any questions you may have along the way! FNBO provides a 24/7 online loan application, competitive rates, low down payment options, prompt pre-qualification, on-time closings, and the advice and guidance that is so essential when purchasing a home.

 

Appraisal Contingency

As the name suggests, an appraisal contingency is when the sale is contingent upon the appraisal confirming that the listing price is similar to its actual value. This protects the buyer from overpaying for a home and ensures the lender is not giving out a loan that is way higher than what the home is actually worth. Over the last several years, when housing prices soared, it was common for appraisals to come back lower than what the home was listed as. But as a buyer, you can often avoid this by having some cash on hand to make up the difference.

 

Title Contingency

Last but not least, a title contingency says that the sale of the property is contingent upon the title having a “clean title,” which means there are no third-party claims, such as unpaid debts or mortgage liens. There will be a title search conducted that will produce a report that lists who actually owns the house and who else has owned it over the years. If there’s any concern about the title status, a buyer can further protect themselves by purchasing title insurance, which protects them from any future losses or damages caused by a bad title.

 

Need More Help?

Founded in 1855, NP Dodge has quite a few decades of experience in the Omaha real estate market. Contact us to be connected with one of our agents, who can help you through every step of the buying or selling process — and answer your questions related to contingencies!