Is Buying Contingent Real Estate Possible?

In real estate, the term "contingent" holds significant importance. It refers to a particular status given to a property listing when the seller has made and accepted an offer. Still, the final sale is subject to certain conditions or contingencies.

If you're considering making an offer on a contingent home, it's crucial to understand the meaning of contingent in real estate and its implications on the buying process. We will provide a comprehensive overview of what contingent means in real estate and whether it is possible to make an offer on a contingent home.

Over my thirty-seven years in the business, numerous clients have asked me what is contingent in real estate. They often ask because they have seen this listing status appear while searching online for properties to purchase. Buyers and sellers will also ask about contingent vs. pending and how they differ. Let's dig into everything you should know.

What is Contingent in Real Estate?

In real estate, the term "contingent" describes a situation in which the buyer has submitted and accepted an offer, but the sale is not yet final. The sale depends on specific conditions or contingencies being fulfilled within a specified timeframe. There are common contingencies in most sales.

These contingencies may include financing, home inspections, appraisal, sale of the buyer's existing property, or other agreed-upon terms. Until these contingencies are satisfied, the property remains in contingent status.

If the seller is willing to continue showing the property and accept a backup offer, the property often falls into active contingent status. Once all contingencies are satisfied, the property will move into pending status.

Implications of a Contingent Status

Understanding the implications of a contingent status is crucial for buyers and sellers involved in real estate. Here are some of the implications of a contingent status and how it can impact the buying and selling experience:

Non-Binding Sale

A contingent sale is not binding, meaning the buyer or the seller can terminate the contract if the contingencies are not met within the specified timeframe. This allows both parties to negotiate or walk away if the conditions are not fulfilled.

Limited Marketability

A contingent status can deter other potential buyers from making offers on the property. It indicates that the property is under contract but has yet to be sold. However, the property may become available again if the contingencies still need to be met.

Time Constraints

Contingencies typically have specific time frames within which they must be fulfilled. These time limits ensure the transaction progresses without unnecessary delays and allow the parties involved to proceed or terminate the contract within a reasonable period.

Making an Offer on a Contingent Home

Making an offer on a contingent home involves submitting a proposal to purchase a property already under contract but with certain conditions or contingencies that must be fulfilled before the sale is finalized.

Here is a breakdown of the process:

Understand The Contingencies

Reviewing the contingencies outlined in the purchase agreement is crucial before offering a contingent home. These contingencies could include obtaining financing, satisfactory home inspections, appraisal results meeting the purchase price, or the successful sale of the buyer's existing home. Understand the specific contingencies and their associated timeframes.

Work With a Real Estate Agent

Enlist the help of a knowledgeable real estate agent who can guide you through the process. They can provide valuable insights into contingencies, negotiate on your behalf, and ensure your offer is appropriately structured. Your buyer's agent can help with this. It's part of their responsibility.

Evaluate The Seller's Willingness

Determine whether the seller is open to considering additional offers while their property is under contract. If the contingent home has a "kick-out clause" or an "escape clause," the seller can accept backup offers if the initial buyer fails to fulfill the contingencies within the agreed-upon timeframe. Your agent can help gauge the seller's willingness to entertain backup offers.

Structure Your Offer

Once you understand the contingencies and the seller's preferences, work with your agent to structure a compelling offer. Consider the purchase price, earnest money deposit, desired closing date, and any additional terms you want to include. Your agent will help ensure your offer aligns with the current contingent status and maximizes your chances of being considered.

Negotiate and Submit The Offer

Your agent will present your offer to the seller's representative and initiate the negotiation process. Depending on the seller's situation and the contingencies involved, there may be room for negotiation on terms such as the purchase price, contingencies, or closing timeline. Your agent will advocate for your best interests and assist in reaching mutually agreeable terms.

Understand The Backup Position

If your offer is accepted as a backup offer, you'll step in if the initial buyer fails to fulfill the contingencies or decides to terminate the contract. Your agent should clarify the backup position and ensure that you have a clear understanding of your rights and obligations in this scenario.

Monitor The Contingencies

If your offer is accepted and you become the primary buyer, closely monitor the fulfillment of the contingencies within the specified timeframes. Stay in touch with your agent and other professionals involved, such as lenders, inspectors, or appraisers, to ensure the necessary steps are taken to meet the contingencies.

Proceed or Terminate

The sale can close once all the contingencies are satisfied within the agreed-upon timeframes. If the contingencies are not met, you may have the option to terminate the contract, depending on the terms outlined in the purchase agreement.

Final Thoughts on Contingent Real Estate

In real estate, a contingent property refers to a home with an accepted offer, but the sale is subject to certain conditions or contingencies. These conditions must be met within specified time frames for the sale. Although a contingent status can impact a property's marketability and restrict other buyers' ability to make offers, it is possible to make an offer on a contingent home, especially if a kick-out clause is in place.

Understanding the meaning of contingent in real estate and collaborating closely with a real estate agent will help navigate the complexities of purchasing a contingent home and increase the likelihood of a successful transaction.