Monday, December 7, 2020

What Does Contingent Mean in Home Sales

 


The Meaning of Contingent in Real Estate Explained

When you're selling a home, it won't be too long before the word “contingent” makes an appearance. Offers can be contingent; there can be appraisal contingencies, finance contingencies, and more. But what does contingent mean?

The meaning of contingent in house sales is really quite important and can slow down your home's sale or stop it completely. When you buy your first home or sell one for the first time, it is essential to understand the real estate lingo real estate agents will use.

Let's investigate further what contingent means in home sales. By having a firm grasp of the concept, you'll be able to make more intelligent decisions.


What does Contingency Mean?

A contingency is a requirement that needs to be fulfilled before the sale can continue. The offer will include contingencies that have to be met for the buyer to stick to that offer. If the contingency isn't completed, the buyer can walk away from the deal with their earnest money deposit returned to them.

As a seller, this means your house has to go back on the market, and you have to begin the process again to find a new buyer. A contingency could be triggered at any point up until closing.

When you receive an offer on your home, it will come with contingencies most of the time. Even if it is a cash purchase, it's still feasible the buyer could have some other common contingency.

Let's look at the most popular types of contingencies you can expect to see when selling your home.

Inspection Contingencies

The buyer wants to be certain they're not purchasing a money pit, so the home inspection contingency protects them against serious defects with the property. Sellers have to wait for the home inspector’s report to see if repairs need to be made or if negotiations have to be restarted on the offer.

If there are problems with the property and an agreement can't be reached to solve the issues, the buyer can exit the deal thanks to the contingency. It is essential for buyers and especially first-timers, to understand how a home inspection works. Not being clear during this phase of the purchase could potentially put your house deposit in jeopardy.

Home Sale Contingencies

When the buyer makes an offer but still have to sell their own home, a home sale contingency might be used. If the buyer’s home doesn't sell, yours won't either. This can be a significant hold-up in your house's sales process, and there isn't much you can do about it.

Accepting an offer with a home sale contingency could slow down your move significantly. Thanks to this, accepting an offer with this type of contingency is something you would be better off avoiding. This is particularly true if you are selling your home in a hot market, where you can expect to find another buyer without too many problems.

In this situation, not accepting the offer and asking the buyer to come back when they have accepted an offer on their own property might be your best course of action. You should maintain occasional contact with the buyer as they could still end up buying your home.

Keep in mind when you accept a home sale contingency, you've put the process of getting to the closing table in someone else's hands. How do you know the home the buyer is selling will be priced correctly or that the agent they're working with will do a good job? You don't!

Most of the time, it makes sense not to accept this kind of contingency.

Appraisal Contingencies

Lenders like to make sure that the money they are giving to buyers matches or is less than the property's fair market value. This is to ensure that, should the buyer enter foreclosure; the lender won't lose out.

An appraisal will be carried out on your home to find how much it is worth. If your home is appraised to be lower than the offer amount, the buyer won't be loaned the amount they're expecting. This could mean that they may not be able to continue with the purchase. Unless they can find the money to make up the difference or the appraisal is challenged, the only other option is to renegotiate the offer price.

Again, if you happen to be in a hot seller's real estate market, it might make sense to counter the buyer and request the appraisal contingency be removed from the offer. There are lots of things you should know about house appraisals. Make sure you brush up on the basics before entering a contract.

Mortgage Contingencies

Most buyers use mortgages to purchase their home, and, unfortunately, sometimes this falls through. This can lead to delays while another lender is found or might have to back out of the deal altogether. Even though someone has been pre-approved for a loan, it can still go wrong when they go through the final lender checks.

Mortgage contingencies are very common, but you need to make sure your real estate agent has done an excellent job vetting the buyer. At the very minimum, you should only accept a pre-approval letter. Keep in mind that a pre-qualification letter isn't worth the paper it is written on most of the time.

How to Avoid Contingencies When Selling Your Home

Contingencies equal risk for home sellers. And the fewer contingencies, the better if you want your home sale to move as quickly as possible. If you can find a cash buyer for your property, you immediately remove a couple of the riskiest contingencies.

Cash buyers are less likely to have a home to sell as well, and if you can just get them to drop the inspection contingency, the sale should proceed quickly. If you get a pre-listing inspection, some homebuyers will be happy to offer the property without that contingency in place.

However, it can be difficult to find a cash buyer with cash purchases only making up a small percentage of home transactions. Your best option may be to find an house flipper if you really want to avoid contingencies. These kinds of investors, however, do come with drawbacks as well.

The Meaning of Contingent vs The Meaning of Pending

When you receive an acceptable offer on your home and both parties sign a contract, your real estate agent will need to change the status in the multiple listing service (MLS). Depending on the state in which you live there can be different options for how a home is "marked" in the system. Two of the common options are pending and contingent.

It is important to understand the meaning of each so you can make the proper decision on how your home should be presented. Sometimes, generally speaking, when a home's status is changed to pending there are no more showings. When it is marked as contingent the possibility for showings is slightly higher, although most agents don't want to show properties where a contract has been accepted.

When marketed as "contingent" the days on market continue to accrue which is an obvious downside. On the upside, the home will continue to show active online in such sites as Zillow, Realtor.com, and others.

You should make sure you discuss with your agent which way to go.

Final Thoughts on The Meaning of Contingent

In the vast majority of real estate transactions, there are going to be contingencies. This is normal and is not something that should frighten you. What is vital, however, is to make sure the time frame for such contingencies is reasonable. Your real estate agent should be able to explain the norm for your area. If you get an offer where the dates don't sound normal, it will be important to question why.

Always go into a real estate transaction with your ears and eyes wide open. Hopefully, you have found the information on the meaning of contingent to be useful.

Don't let that scare you and call us for more informations if needed and to get represented in the sale of your home.



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