The National Association of Realtors (NAR) reported closed in January 2020 were done so with contingencies attached. If you’re part of the 61 percent of American’s who spend up to two hours per week online searching for their dream home*, chances are you’ve seen your fair share of listings marked with the word “contingent.”
In its simplest form, contingency means “dependent on or conditioned by something else.”
Contingency in real estate is an agreement between the buyer and seller that the real estate transaction will go through only once (and if) the agreed-upon conditions are met. The buyer makes an offer, the seller accepts, but either party can withdraw from the transaction if contingencies are not satisfied.
There are five types of contingencies most often used within real estate contracts, including:
- Home Inspection Contingency: The offer will go through if the home inspection report doesn’t reveal anything the potential buyer wasn’t already aware of, or the inspector finds structural/hazardous issues within the home the buyer does not want to repair or negotiate. The NAR reported that 57 percent of reported contracts in 2021 were done so with a home inspection contingency attached.
- Appraisal Contingency: The offer will go through if the lender approves the appraisal value after assessing the home’s value based on comparable houses in the area. Forty-one percent of reported 2021 home sale contracts included an appraisal contingency.
- Mortgage/Finance Contingency: The offer will go through if the buyer can obtain financing from a lender. Forty-four percent of reported 2021 contracts included a finance contingency.
- Home Sale Contingency: The offer will go through if the potential buyer sells their current home to buy the new home. If a home sale contingency is present, the home may be listed as “pending.”
- Title Contingency: The offer will go through if the property produces a clean title. A clean title is any property title without problems pertaining to the property’s record of ownership, such as unsettled liens, unpaid taxes, or other issues the title company cannot resolve.
Helpful Tip: A mortgage calculator can help you determine the amount you could afford and what your payment would look like with different mortgage rates. Or make your offer stand out from the rest with a professionally underwritten pre-approval with WCM’s Priority Purchase Program.
Three Things You Should Know About Contingent Offers
As you can see, an offer in contingency is not always a “done deal.” This means you still have an opportunity to act in the event the sale falls through. Before you rush to call your mortgage consultant or real estate agent, there are a few factors you should be aware of.
- How long does a house stay in contingent status?: How long a house stays in contingency status will depend on the specific contingency period of each clause. You can generally expect a mortgage contingency period to run anywhere from thirty to sixty days, although this isn’t always the case. If you’ve found a contingent home you’d love to make yours, you may want to call the listing agent to find out exactly what deadline the active contingencies must be met by so you can act accordingly.
- Can a seller back out of a contingent offer?: There are only certain circumstances where a seller can back out of a real estate contract without penalty, including:
- When it’s in the review period.
- The contract has yet to be signed.
- The contingencies are not met.
- Can you put an offer on a house that is contingent?: Yes, backup offers can be accepted. In fact, you could submit a backup offer without contingencies to potentially make your offer stand out more for buyers. However, this option is not for everyone.
How To Beat a Contingent Offer
Although you’ll have to act fast, beating out a contingent offer isn’t impossible.
If you notice a home is in contingency, contact the selling agent immediately to see if the home is accepting offers or if the contract is currently within a review period in which either party can back out without any consequence.
Whether they can back out without consequence, or you find out you must wait to see if contingencies are met, you could still make an offer that potentially stands out to sellers. This includes:
- Connect with the seller and write a personal letter about why you should be the next pick for their home.
- Submit an offer that waives contingencies (if possible). So far in 2021, more homebuyers amid bidding wars are waiving contingencies.
- Submit your offer with a professionally underwritten pre-approval.
Wyndham Capital strives to make it simple to navigate buying a home in any market with industry-leading, actionable advice. Contact WCM today to get started on your home loan adventure or to get answers to your mortgage questions.
*Wyndham Capital Mortgage commissioned Atomik Research to run an online survey of 2,342 adults in the United States for their Mortgage 101 survey. The margin of error fell within +/- 2 percentage points with a confidence interval of 95 percent. The fieldwork took place between March 23rd and March 29th, 2021. Atomik Research is an independent creative market research agency.