What Does Contingent Mean in Real Estate; Helpful Information In Real Estate
In the real estate business, people use the word, ‘contingent’ when talking about pending transactions that are caused due to unmet conditions in a contract.
Not to worry, this article will provide information about contingent, so that you can understand it and also know how it is applied in the real estate industry.
What Does Contingent Mean in Real Estate?
A contingent in real estate is when a seller accepts an offer on a property, but is only willing to complete the sale if every condition has been met.
The condition of a contingent is straight forward. If the conditions on the contract are met, then the buyer and seller can go forward with the transaction. However, if these conditions are not met then the buyer or seller has the right to back out of the transaction.
Basically, contingent in real estate transactions indicates that the sale depends on the contract contingents being met.
Some Common Contingents in Real Estate
Real estate transactions usually involve a lot of money. A contingent is a form of protection for buyers and sellers; allowing them to pull out of the transaction if any unexpected situation arises. Here are some of the most common contingents recorded in the US:
1. Appraisal Contingent
An appraisal contingent happens often in real estate transactions. An appraisal contingent mainly protects the buyer more than the seller.
In the case of an appraisal contingent; this is when the buyer is getting a mortgage in order to buy a property. Before the transaction is completed, the lender appraises the property to make sure that the property is worth the asking price.
If the price of the property is appraised for less than expected, then the lender can deny the buyer access to the loan.
The appraisal contingent allows the buyer to back out of the transaction if the property appraisal is lower than expected.
2. Title Appraisal Contingent
The title appraisal contingent is another important contingent for buyers. The title contingent gives the buyer the right to back out of the transaction if they find out that the seller doesn’t have full ownership of the property.
Most of the time, buyers do not want to invest in any transaction that could cost them their ownership rights after purchase.
3. Home Inspection
The home inspection contingent allows the buyer to conduct an inspection of the property they are about to buy. This way, the buyer gets a heads up about repairs that has to be made in the property.
Also, in the contract, the contingent might contain a certain amount which is the maximum amount that the buyer is willing to spend on any repairs.
For instance, the buyer might set maximum repair amount for $10,000 and anything above that might make them back out of the transaction.
On the other hand, in areas where the real estate market is hot and the competition is stiff; buyers waive this home inspection contingent.
4. Mortgage
Keeping in mind that loans do not always go through, buyers like to include the mortgage contingent. This contingent gives buyers the right to back off a transaction if their loan doesn’t come through.
5. Home Sale Contingent
The home sale contingent is always included into the contract by buyers. Buyers include this contingent in their contracts if they need the proceeds from an older property to buy this new one.
So they include the contingent in their contract stating that the new purchase will go through when they complete the sale of their old property.
6. New Housing Contingent
This contingent is for sellers. The new house contingent is included in a contract if the seller hasn’t found their next home and have accepted an offer for the soon to be old home.
The seller tries to look for a new home while the buyer has already made an offer. So the seller adds a contingent which allows them to back out if they can’t find a new place on a certain date.
Six Types of Contingent statuses in Real Estate
According to the multiple listing service which is a real estate marketing and advertising database that helps home buyers browse listing online. Here are the types of statuses of contingent houses.
1. Contingent: Continue to Show(CCS)
The contingent; continue to show status indicates that the seller has accepted a buyer’s offer. However, there are contingents that have to be addressed.
While the buyer works to clear out these contingents, the seller is allowed to show other potential buyers the property.
2. Contingent: No Show
A no show is similar to the CCS. However, the no show stops the seller from showing any other potential buyer the property or accept any other offer.
The seller has to wait for the buyer whose offer has already been accepted to clear up every contingents and then move forward to complete the transaction.
3. Contingent: With Kick-Out
A contingent with the kick out clause means: If a seller receives an offer with a contingent, the seller is allowed to still market the property.
This means that the seller has the right to kick out the buyer with the contingent if a better offer comes around.
4. Contingent: With No Kick-Out
The contingent with no kick out keeps the seller tied to the buyer with the contingents. That means the seller cannot accept any other offer from other buyers. No matter how high that other offer might be.
5. Active Short Sale Contingent
The active short sale contingent will inform other agents that the property is off the market; granted the buyer makes a down payment that is accepted by the seller.
6. Contingent Probate
The contingent probate occurs when the court administers the property of a dead person. The seller in this scenario has accepted an offer, but, the difficulty of this kind of transaction means the lawyer also gets a cut for completing the transaction.
