A lot of preparation comes into selling or buying a house. Both buyers and sellers put all the chances on their side for a smooth real estate transaction by preparing all the necessary paperwork and seeking counsel from professionals, such as their real estate agent and mortgage lender. However, there is always the risk that something goes wrong during the process.
This is where listing contingencies come in to protect the buyer and the seller. After the seller has accepted a potential buyer’s offer, they pull the listing off the market, but different conditions have to be met for the sale to go through, giving time to both parties to do their due diligence for a successful outcome.
What Are the Different Contingency Statuses?
Here are some of the common contingencies you may encounter on listings.
Continue to Show (CCS)
The seller has accepted an offer, but the offer is subject to multiple contingencies. The seller is still showing the property and accepting backup offers in case the conditions for the initial offer are not met.
No Show
The seller has accepted an offer with contingencies but is no longer showing the property or accepting backup offers.
With Kick-Out
The seller has accepted an offer subject to a deadline and is receiving backup offers. If the deadlines for the initial offer’s contingencies are not met, the new offer “kicks out” the initial bid, and the contract is canceled.
With No Kick-Out
The seller cannot accept backup offers unless the initial contract is canceled.
Short-Sale
If the property to be sold is a short sale, the home selling process gets more complicated and often lengthier owing to the number of parties involved in the real estate transaction. For the short sale to go through, the original lender must accept the offer and be willing to take less than the amount still owed on the mortgage. A contingent short sale means that the seller has accepted an offer but still receiving backup offers in case the initial contract falls through.
Types of Home Contingencies
Real estate transactions can be complex, involving multiple parties and moving pieces to go through. It is not uncommon for homebuyers and sellers to make the contract “subject to” different conditions that must be met for the transaction to be completed. These conditions, also known as contingencies, protect both parties from unexpected situations and allow them to back out of the contract. Here are some of the most common home contingencies you may encounter during the homebuying and selling process.
Home Sale Contingency
Home sale contingencies are common for buyers who are already homeowners. In order for them to have the funds to buy the property they are putting an offer on, they may need to sell their previous house first since they may not be in a financial position to carry two mortgages at the same time. They allow the buyers to back out of the contract if their previous home does not sell in time without legal repercussions. Home sale contingencies can be a burden for the sellers, who may need to wait longer than usual for the transaction to go through since it is subject to another sale, with the uncertainties that come with it.
Appraisal Contingency
Appraisal contingencies provide insurance for the buyer that they are not overpaying for the property. In order for the sale to go through, the house must appraise at or above the contract price. In many cases, the buyer’s financing is also subject to the same condition. In the event the house appraisal comes in lower than expected, the buyers may back out of the sale, renegotiate the contract for a lower price, or ask the seller to pay the difference in cash. In a market where property prices are increasing rapidly, it is not uncommon for appraisals to come in lower than contract prices since appraisers must use past sales to justify their opinion of value. The buyers may choose to bridge the difference in cash between the appraisal price and the contract price if their mortgage is subject to an appraisal contingency.
Mortgage Contingency
Mortgage contingencies (also known as financial contingencies) are among the most common home contingencies. The vast majority of buyers rely on financing to purchase a house, and whether they are approved or denied a mortgage determines their ability to buy the property. Although most house hunters are pre-approved for a mortgage up to a certain amount, the underwriter’s final approval can take up to 90 days as they review the borrower’s eligibility and the home to be purchased. The mortgage contingency gives the would-be buyers a timeframe to secure financing without losing their earnest money deposit.
Home Inspection Contingency
Nobody wants to buy a money pit. Therefore, most offers are subject to a satisfactory home inspection. Having a home inspection done is part of the prospective buyers’ due diligence as it allows them to get a better idea of the property’s condition and gives them an estimate of any potential repairs. If the home inspector discovers any unexpected issues during their inspection, the buyers may re-negotiate their offer. Depending on the extent of the damages, the buyers may decide to move forward with the sale, offer a lower contract price, request that the sellers fix the issues before closing, ask for a credit to go toward the repairs to be done, or back off the sale entirely. Some types of government-backed mortgages, including FHA and USDA, are particularly stringent and may require the sellers to fix some of the issues for the sale to go through.
Title Contingency
As part of their due diligence, the buyers must conduct a title search to ensure that the sellers have the right to transfer the property and that there are no liens against the home that could impact the buyer’s ownership rights after the purchase. The title search may uncover that the house does not have a “clean title” and that there may be encumbrances, such as easement issues. Title contingencies allow the buyer to back out of the sale.
What is the Difference Between Pending and Contingent?
A contingent listing means that the buyer put an offer on a house and the seller has accepted that offer but the contract is subject to one or several contingencies that need to be resolved for the sale to go through. Meanwhile, a pending sale means the issues have been resolved, and the parties are waiting for the final documentation to be completed so the sale can move to “closing.” Sellers may accept backup offers while the sale is contingent, but they cannot do so once the house is pending, although they may still keep showing the property in case the sale falls through at the last minute.
How Long Can a House Stay Contingent?
Houses rarely stay contingent for more than 30 to 90 days, depending on the type of contingencies attached to the offer. Contingencies have a timeframe that must be respected for the contract to stay valid, although both parties may request that the deadlines be extended if they foresee any issues. However, the contract will likely be canceled if the deadlines are extended beyond reasonable.