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A Complete Guide to Contingency Offers

When it’s time to buy or sell a home, understanding what contingency offers are will help. There are plenty of things to know about the real estate transaction process. Let’s take a little time to look at contingency offers today.

What is a Contingency Offer?

When you buy or sell a house, this term will likely be used. You will hear contingent offer or contingency at least a few times.

The National Association of REALTORS states that 76% of the homes sold have a contingency attached to the offer. Basically, when a buyer makes an offer, it comes with a caveat. The final sale is contingent upon a specific requirement or multiple requirements being met.

Buyers Gain Protection from Contingency Offers

The main reason for a contingency offer is to protect the buyer. They are agreeing to purchase the home as long as specific requirements are met. If those requirements are not met, they have the ability to back out without losing their earnest money deposit. 

Sellers Gain Benefits from Contingency Offers, Too

While it may seem like something only providing benefits to the buyer, sellers gain benefits, as well. With a contingent offer on the home, buyers can continue to market the home and accept other offers while knowing there’s at least one offer already on the table.

Contingent Sale vs. Pending Sale

The term “contingent sale” is rather common and may be used interchangeably with “pending sale” even though they are not the same. 

  • Pending sale means both the buyer and the seller are ready to move forward with the sale. 
  • Contingent sale means the requirements of the offer have not been met just yet.

If you’re a buyer, you may want to skip a property with a pending sale, but you may want to make an offer on a property with a contingent sale.

Common Types of Contingent Offers

There are several contingencies added to offers during a real estate transaction. Some offers may have multiple contingencies, while others may only have one. 

Appraisal Contingency

Almost every offer will have an appraisal contingency. Buyers taking out a mortgage to buy a home will be required to get an appraisal before the loan will be approved. 

In order for this contingency to be removed from the offer, the appraisal will need to meet or exceed the seller’s asking price. If it doesn’t the buyer and seller may need to renegotiate the selling price or terminate the offer.

Home Inspection Contingency

Another very common contingency is the home inspection. Most buyers won’t be able to buy a home without an inspection due to the mortgage company. However, even all-cash buyers will likely prefer having a home inspection done before the offer is approved.

If an issue is found, the buyer and seller will need to come to an agreement. The seller might fix the issue or offer a discount on the sale price to cover the cost of the repair.

Mortgage Approval Contingency

Of course, most buyers will add a contingency to their offer for mortgage approval. They don’t want to be stuck trying to buy a property when they cannot get approved for the mortgage.

Other contingencies include:

  • Sale and Settle Contingency – Means the buyer will need to sell their existing home before moving forward with the purchase.
  • Settlement Contingency – Means the buyers’ current home is already under contract, but they will wait until it’s sold to close on the new home.
  • HOA Approval Contingency – Means the buyer must be approved by the homeowner’s association before the sale can move forward.

With a better understanding of contingency offers, it will be easier to know what you’re getting into when buying or selling a home.

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