During the first quarter of 2022, 6% of home contracts were terminated due to unmet contingencies, according to a recent survey by the National Association of Realtors.
If you've ever had a home sale fall through, you know it can be devastating. There's the disappointment of unfulfilled expectations — particularly if you thought you were about to close the deal. Then there's the time and money wasted, and the task of starting the home listing and marketing process from scratch.
Contingencies are a common reason that offers fall through. For example, maybe the buyer's mortgage wasn't approved, or they couldn't sell their current home. Or, maybe the inspection revealed an issue that caused the buyer to back out.
Keep in mind that you don't have to allow contingencies just because a buyer requests them. This is especially true if you're in a seller's market where buyers are competing to present the most attractive offer possible. And if you do decide to allow certain contingencies, you should always try to negotiate favorable terms to protect your interests.
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What Does Contingent Mean in Real Estate?
When a house is marked as contingent, it means the seller has received an offer but an issue — the contingency — needs to be resolved before the deal closes.
Most real estate transactions include standard contingencies, such as the buyer's ability to inspect the property and view the title report.
Should You Accept a Contingent Offer?
In general, you should proceed with caution before accepting a contingent offer — or avoid contingencies altogether, if you receive an offer without any.
Contingent offers are riskier, because if the contingencies aren't met, the deal will fall through.
Additionally, MLS boards require you change a listing to contingent or pending. This means you can't continue to market the home as being available once you've accepted a contingent offer.
You may want to consider accepting a contingent offer if the buyer's current home is already in the late stages of escrow. This means the buyer's home sale is just weeks — or even days! — away from being finalized. Just make clear in the contract that if your buyer's sale falls out of escrow, you have the right to terminate your escrow with them.
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3 Common Reasons for a Contingent Offer
House Sale Contingency
A buyer may include a contingency that the sale only goes through if the buyer can sell their existing home. A seller can include a similar contingency — that they'll only sell as long as they can buy a new property.
A buyer must be able to secure acceptable financing by a particular date in the home-buying process. Typically, that means qualifying for a home mortgage loan. If the buyer doesn't have cash or a loan to buy the home, they can't fulfill the terms of the sales contract.
A buyer pays for an independent inspection of the home to make sure there aren't any issues that would make the home unlivable or unsafe. They want to find out if there are any deal-breaker issues with the property. Roofing, electrical, and plumbing issues are among the common reasons for failed home inspections.
A buyer who has a home inspection contingency and isn't satisfied with the results of the inspection can walk away from the deal. Or, the buyer may negotiate for repairs or ask for a reduced price for the home.
Pending vs. Contingent
The two terms are often used interchangeably, but they aren't the same.
Contingent means there are items laid out in the contract that must be resolved for the sale to move forward.
Pending means contingencies in the contract have been met. At this stage, all that's left is the closing and signing of the contract by both parties.
But, even a pending sale can fall through at the last minute. The reason could be as simple as the buyer changing their mind.
Time Limits on Contingency Fulfillment
Depending on the contingency, it could be resolved in just 24 hours. More than likely, if it's a home sale, or waiting for the results of an appraisal or inspection, it could take several weeks to meet a contingent condition.
Timelines for average times to address these issues can vary by state and the individual parties involved. The final deadline given is likely to be no less than a week before closing is scheduled or anticipated.
Negotiating Contingencies With Buyers
If you receive an offer where everything else looks great, ask the buyer to remove the sale contingency and replace it with a longer escrow (the time period during which the buyer's money deposit is held in escrow until the contract is signed or dissolved) so they have time to sell their property. With this setup, you can keep the buyer's earnest money to compensate you for lost marketing time if the buyer is unable to sell.
If your buyer is reluctant to make that deal, it means they aren't willing to take a risk that their home won't sell, so why should you? In this case, it may be time to decline the offer altogether.
If you do decide to decline an offer, remember to do so politely and encourage the buyer to follow up with you once they've sold their home. If the market is hot and they sell quickly, there may still be an opportunity to strike a deal with no sale contingencies attached.
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FAQs About Contingent Offers
How often do contingent offers fall through?
According to a recent survey, 6% of recently terminated home contracts were due to contingencies not being met. Learn more about how often contingent offers fall through.
What does contingent mean in real estate?
A real estate contingency is a clause in the sales contract that says a condition must be met within a specific time period. If not, the buyer can cancel the deal without losing their earnest money deposit. Learn more about real estate contingencies.
What does pending mean in real estate?
Pending means contingencies in the sales contract have been met. All that's left is the closing and signing of the contract by both parties. But even at this late stage, snags in the sale may arise.Learn more about pending sales in real estate.
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