When you become a real estate agent, you learn a new language: the language of the real estate industry. The contingent listing status is one term many people don’t quite understand. You should be able to clearly explain terms like “contingent” to your clients to help them make informed decisions when buying or selling a home. This article explores the meaning of contingent in real estate and highlights the different types of contingencies out there.
In this guide, we explain the answer to “what does contingent mean on a real estate listing?” and highlight the different types of contingencies and contingency statuses. Our team at Local Leader® writes helpful guides on running a successful real estate business. Check out our guide to listing appointments for more insider tips.
What is Contingent in Real Estate?
To be “contingent” is to be dependent on specific circumstances. In real estate, the contingent status on a listing means that the seller has accepted an offer. But, it isn’t final until the contingencies in the contract are met. Since the sale hasn’t technically happened yet, the seller or buyer can back out of the contract if the other party doesn’t uphold their end of the deal.
Buyers and sellers use contingencies to protect themselves from being stuck in a contract that ends up unfavorable to them. For example, a buyer could get hit with a $20,000 repair bill if a home inspection is not included as a contingency in their offer. Contingencies in real estate work to protect both parties from things that are known to go wrong sometimes.
Common Contingencies in Real Estate
Buyers often have contingencies in their real estate offers because they want security in case issues pop up. After all, the purchase of a home is one of the biggest financial decision they’ll make in their lifetime. However, there’s some risk to having contingencies, especially on a hot listing. This is because the seller might drop the buyer’s offer in favor of one of their backup offers with no additional requirements.
As a real estate agent, you should inform buyers of contingencies in real estate that work for their situation. Ideally, you want to provide the right amount of protection without taking their offer out of the running.
Five most common contingencies in real estate
1. Home Inspection Contingency
A home inspection contingency allows the buyer to conduct a professional inspection of the property, assessing its condition and potential repair costs. The buyer might put a limit in the contract for how much they’re willing to pay for repairs and can back out if the inspector quotes above that limit.
2. Mortgage Contingency
It’s best to get pre-approval for a mortgage before making an offer. But there’s always a slight chance the lender won’t give final approval. Typically, a mortgage contingency provides the buyer with 30 to 60 days to secure financing. If their genuine efforts to get approved for a mortgage fail after that period, the buyers can choose to back out without a penalty.
3. Title Contingency
Buyers can make their offer contingent on a title search that reveals no issues. A house’s title shows who owns the house and whether it has issues (called “encumbrances”) that could cause problems for the buyer. For example, if the property being sold also belongs to another party who isn’t present, it could cause an issue for the new owner. If the title search digs up any such issues, the buyer can take back their offer.
4. Home Sale Contingency
If a buyer wants to sell their house before purchasing a new one, they could propose a home sale contingency. The seller can accept and wait for the buyer to sell their house before closing the sale. Or they could choose to go with another offer. Sellers typically turn down home sale contingencies because they want to sell their home quickly and maintain some control of their circumstance. Therefore, in a hot market with multiple offers, this is an example of a contingency in real estate that may be ill advised.
5. Appraisal Contingency
An appraisal contingency is typical when a buyer takes out a mortgage to buy a home. The lender can’t give the buyer more money than the listing is worth. So, the lender might deny the loan if the appraisal is significantly below the agreed-upon sale price. If this happens, the buyer can abandon the offer or work out a way to make up the difference between the loan and the sale price.
Types of Contingent Statuses
As an agent, you should give specific advice based on the status of the listing the buyer is interested in. If a listing has a contingent status, it can affect whether it’s worth it for the buyer to make an offer.
Examples of contingent statuses on active listings
Contingent: Continue to Show (CCS)
The seller has accepted an offer but has contingencies to address with the buyer. Other buyers can still view the listing and make offers until the sale is final. With this status, sellers are usually looking for better offers with fewer contingencies.
Contingent: No Show
The seller accepted the buyer’s offer and is no longer showing their property or accepting other offers. This status typically indicates that the seller is confident the contingencies involved in the offer won’t cause issues. Everyone expect that the contract will not fall through.
Contingent: With Kick-Out
The kick-out clause provides a deadline for the buyer to complete their contingencies. The seller can continue to show their listing and cancel their acceptance of the buyer’s offer if they don’t meet the deadline.
Contingent: Without Kick-Out
Without a kick-out clause means the buyer has no deadline for fulfilling contingencies. The seller cannot accept other offers or withdraw their acceptance.
Contingent in Real Estate vs. Pending: What’s the Difference?
In real estate, you might hear the terms contingent and pending used interchangeably, but they have important differences in meaning. A contingent listing means the seller accepted an offer, but specific requirements haven’t been met. Although it’s rare, one of the parties might cancel the contract, and the seller can start taking other offers.
However, if the listing status is pending, the buyer and seller have settled all contingencies. The listing is no longer active, and the closing process is nearing completion.
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