What Does Contingent Mean in the Real Estate Industry?

Let's face it - house hunting is tiring. But it's all worth it once you find the one house that fits all your needs and stays within your budget. However, what if your dream house is, in fact, a contingent listing? Can you make an offer? And what does contingent mean in real estate?

We know how many real estate terms there are and how confusing they can be. That is why we made this in-depth article explaining different listing statuses but focusing on contingency. If you are working with a real estate agent it is best to consult with them on every home purchasing decision, such as making a contingent offer or what contingency clauses to put in your offer.

Nevertheless, it is best to get familiar with these terms so you can have a productive conversation with your agent, rather than spending time not knowing what they are talking about.

Contingent Listing Status

There are listing services that real estate agents use to get information on all properties on the market. The listed houses are not in the same phase of the sale. Active listings are referring to the houses without accepted offers. Once the seller accepts the offer, the listing status transfers to contingent.

When a seller finds the offer they are satisfied with, the sale is not done yet. The seller and the potential buyer sign a sale contract, and until all the clauses from the contract are met - the house remains contingent. But why, what does contingent mean in real estate?

The term contingent stems from contingency clauses. Contingency clauses are actually the conditions that the buyer sets for the seller in the offer and (if they accept it) later in the sales contract. Each clause serves to protect the buyer and his earnest money. Additionally, the clauses give the prospective buyer a way out in case some conditions aren't met.

There are many types of contingencies, and every homebuyer chooses carefully what to put in their offer since sellers don't like to be conditioned - especially in the hot market.

Types of Contingencies

The offer that the buyer makes is rarely just about the money, it is also about the nuanced way to come up with contingency clauses. Real estate agents are very helpful during this time in the home buying process, as they can advise you what not to compromise on, like home inspections and financing.

The most common contingency is probably financing contingency or mortgage contingency. That is because most home buyers have to take on a loan to buy a property. Although preapproval means a lot, it is not always certain that you will get approved. The mortgage clause protects your earnest money in case you don’t get approved for a mortgage.

Appraisal contingency refers to the permission to back out of the sale if the appraisal value of the house is less than the sale price. An appraisal contingency is required when there is a mortgage lender involved, but cash buyers often use it as a future safeguard against potential equity loss.

There was a lot of talk about inspection contingency amidst the flaming hot market in 2021. Real estate agents were repeatedly advising people not to compromise on inspection contingencies, but the gap between demand and supply was so large that people had no other choice.

The inspection contingency is a clause in the sale agreement that allows the buyer to back out if there is a major repair issue with the property. Two parties can even agree that some repair costs get paid by the seller before the sale gets finalized.

Can You Make an Offer on a Contingent Listing?

Since the sale can fall through during contingency, many sellers keep their options open and accept backup offers. Contingent property is, therefore, an active listing - but purchasing it could be more expensive and complicated than the regular active property.

Backup offers should be carefully thought out. While you are focusing on getting that particular house, the seller is looking for the best offer and you might lose time and resources, but end up priced out.

A seller who just got out of contingency status is probably impatient, eager to sell and looking for the easiest way out of the market. If there is a cash offer or a buyer without contingencies a seller might gravitate toward them, rather than you - another regular buyer with a new set of contingencies.

However, this doesn’t mean that you should abandon your needs. Consider the advice of your real estate agent, and don’t compromise on what is important to you. It’s better to spend a few more weeks looking for a new house, than years on paying unexpected repair costs.

Title contingency is another common clause in the sale agreement. A title company should inspect each title transfer since the house’s first owner, to make sure that there are no liens on the house. You don’t want to pay off other people’s debts or to have an old relative pop up and ask for a part-ownership.

Contingency Statuses

You might have seen many different labels of contingency statuses. A house is rarely in a plain contingent state. Rather, a seller will specify how open they are to an offer. That is why listing agents use subcategories. There are six most commonly used contingency statuses, and each of them has a slightly different meaning for a house hunter.

Contingent property is the closest to active status when it is marked Contingent: Continue to Show or CCS. This means that the seller continues to show the property and accept offers while dealing with multiple contingencies.

Contingent: No show is a listing status the closest to a house being off the market. The seller and their agent are sure that all contingencies will be met in no time. These properties do not accept new offers and there are no showings. It is best not to get caught up on properties in this category.

When a homeowner has major financial issues and isn’t able to pay their mortgage installments, there is a high chance of a short sale scenario. If a house is in short sale contingency it is very unlikely that it will come back to an active contingency status.

During a short sale, a seller is accepting offers for less money than the house’s actual market value and even less than what they own on the mortgage. Short sale contingent properties are not accepting new offers, they are in a process of a short sale, which can take months.

A contingent property can be with or without a kick-out clause. If there is a deadline for the buyer to fulfill all contingencies then there is a kick-out clause. Without it, the seller can take as much time as they need to meet all conditions listed in the sales contract.

There is another category you might have seen while browsing through the listings, and it is a contingent probate status. This status occurs when a homeowner passes away, and there are no plans set in place after his or her death.

The Difference Between Contingent and Pending Status

Contingent vs pending status is sometimes, mistakenly used interchangeably. Property with pending status is much closer to closing than the one with contingent status. A house is pending when all contingencies are met, and the sale is in process.

It is quite unlikely that a pending home returns to active status. A buyer will probably lose their earnest money if they back out of the sale during pending status. A seller has to pay penalties if they back out of the sale at this point of the process.

That is why many real estate agents will advise you not to get your hopes up for a pending property. Nevertheless, the chances are low - but never zero.

Common Pending Statuses

It is not illegal to put an offer on a pending property. Especially if the seller notifies that they are taking backups or that the property is pending for more than 4 month

Another common pending status is a pending short sale, which is similar to the contingent short sale, just a bit further along the process.

Do You Want to Avoid Contingencies When Selling a Property?

If you were thinking about selling your house, this article shouldn’t discourage you. If you want to avoid contingencies and a long selling process, we have a solution for you. SleeveUp Homes is ready to buy your house as-is, and we don’t need a long time.

We are guaranteeing ten grand more, and without fees, commissions, and no repairs. Just contact us, request an offer, and see for yourself

Author:

Cesar Gomez , Broker /

Cesar has worked as a real estate agent and broker in the southern California region since 2013.

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