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After months of house-hunting, you've finally found the perfect home—only to discover that the seller has already accepted a contingent or pending offer.
In real estate, contingent and pending offer statuses both mean that the home sale process has begun. However, there are some important differences between contingent and pending sales. Here's what home buyers and sellers need to know when crafting purchase contracts.
What Does Contingent Mean in Real Estate?
A contingency is a condition in a real estate contract that must be met before the sale can proceed. For example, a seller might make an offer that is contingent on the property being appraised at or above the selling price. If the appraisal values the home at less than the sale price, the seller can back out of the deal without losing their earnest money deposit.
When you make an offer on a home, a deposit is usually required for the seller to accept your offer. If you withdraw from the transaction without a contingency, you may lose your deposit and even face additional penalties. A contingency allows you to walk away without forfeiting any money.
Most contingencies are designed to protect the buyer. In the situation above, a contingency protects the buyer from overpaying for a home or losing their deposit. However, sellers sometimes use contingencies too. For instance, a seller might request a contingency allowing them to walk away from the deal if they can't buy a new home within a certain time frame.
Common Types of Contingencies
There are several common kinds of contingencies used in real estate transactions.
- Home sale contingency: If you're selling your home and buying a new one, you may want to make the sale contingent on finding suitable housing first. Typically used in a seller's market, when homes are at a premium, a home sale contingency can prevent the home seller from being stuck without a place to live. Buyers may also use this contingency if they want their current home to sell before finalizing the purchase of your home.
- Inspection contingency: A home inspection, usually conducted after the seller accepts an offer, alerts the buyer to any problems with the home that may need repair. Home inspections can uncover damage that may cost thousands of dollars to fix. An inspection contingency allows the buyer to walk away if they aren't satisfied with what the inspection uncovers.
- Appraisal contingency: When you finance a home purchase, your lender will require a professional appraisal to confirm the home's value. An appraisal contingency allows buyers to withdraw the offer if the home is appraised for less than the amount of your offer.
- Financing contingency: Most buyers need a mortgage to finance the purchase of a home. Also called a loan contingency or mortgage contingency, a financing contingency lets the buyer out of the purchase contract if they can't get a mortgage. For instance, if you've been prequalified for a mortgage but then lose your job, your income will drop and the lender may not approve your loan. Most financing contingencies last for 30 to 60 days.
- Title contingency: There may be a lien on a home or a problem with its ownership status that legally prevents the homeowner from selling it. A title contingency ensures the buyer can see a title report and withdraw their offer if any problems with the title, such as liens, aren't addressed
What Does Pending Mean in Real Estate?
A real estate sale becomes pending when the seller accepts an offer, any contingencies are met and the process of closing the sale begins. The sale remains pending until the process is completed. Depending on whether the buyer made a cash offer or is financing the purchase, a sale is generally pending for one week to two months.
Common Types of Pending Sales
There are different types of pending home sales.
- Pending, taking backup offers: The seller has accepted an offer, but may be willing to consider offers from other buyers in case the first offer falls through.
- Pending, no longer showing: When the seller is confident a pending sale will close without a hitch, they typically take the property off the market and no longer allow it to be shown.
- Pending, short sale: To avoid foreclosure, homeowners may agree to sell the home for less than it's worth in a short sale. The seller must document the reasons for a short sale, and the mortgage lender must approve it. Since this involves more paperwork than a standard home sale, short sales usually stay in a pending state longer than standard home sales.
Can You Make an Offer on a Contingent or Pending Home?
You can sometimes make an offer on a contingent or pending home. Whether or not it makes sense to do so depends on the housing market, your budget and the specifics of the offer the other buyer has made.
When an offer includes contingencies, sellers sometimes keep showing the property to other buyers, hoping to have a backup offer in their pocket if the contingencies aren't met. A seller can only do this if the purchase contract includes a kick-out clause. With a kick-out clause, a seller who gets a better offer can give the initial buyer the option to give up the contingency and go ahead with the purchase or withdraw from the contract. For this strategy to work, you'll need to offer more money than the initial buyer, pay cash, waive contingencies or otherwise sweeten the pot.
If the seller is confident the contingencies will be met, or the contract doesn't have a kick-out clause, they typically stop showing the property or taking backup offers.
Pending sales have already met their contingencies. Still, there's always the chance that the sale could fall through. If you've got your heart set on a home pending sale, your real estate professional can ask the seller and their agent if they are willing to entertain other offers.
Be Prepared
When you're ready to make an offer on a home, an experienced real estate agent can craft a contract that includes the necessary contingencies to protect you. Getting preapproved for a mortgage can help boost your odds of acceptance by showing sellers you're ready and able to buy.
Before shopping for a mortgage, however, take some time to check your credit report and credit score. You'll generally need a score of 620 to be approved for a mortgage. If your score is on the lower end, paying down debt, paying your bills on time and avoiding applications for new credit can help improve your credit score, making it easier to qualify for a mortgage and afford the home of your dreams.