When you step into the real estate market, whether as a buyer or seller, you’ll come across an array of terms and jargon that might as well be in another language; one of these terms is “contingent,” particularly in the context of selling a house. It’s a term that can evoke a mix of curiosity and confusion. So let’s demystify what selling a home on contingent means and how it impacts both buyers and sellers in the housing market.
Understanding Contingencies in Real Estate
In real estate, a contingency is a condition that must be met for a transaction. Think of it as a safety net for both parties involved. These conditions are put in place to protect the buyer and seller, ensuring that certain criteria are satisfied before the sale is finalized. If these conditions aren’t met, the parties may have the option to renegotiate or, in some cases, walk away from the deal altogether.
Types of Contingencies
Contingencies can vary widely, but there are a few common ones that you’re likely to encounter:
Home Inspection Contingency
This allows the buyer to have the home professionally inspected. If issues are found, the buyer can request repairs, negotiate the sale price, or back out of the purchase.
Appraisal Contingency
This ensures the property is valued at a minimum, specified amount. If an appraisal values the property lower than the agreed-upon sale price, the buyer can renegotiate or terminate the agreement.
Financing Contingency
Also known as a mortgage contingency, this gives the buyer a set period to secure financing for the purchase. If the buyer cannot secure financing, the contract can be voided.
Sale of Current Home
For buyers who need to sell their existing home to finance the new purchase, this contingency allows them to back out if they can’t sell their current property within a specified timeframe.
Implications for Sellers
Selling a house on a contingent offer can feel like a double-edged sword. On one hand, accepting a contingent offer might be necessary, especially in a buyer’s market or if the offer is particularly appealing. It can also widen the pool of potential buyers to those who might still be trying to sell their current home or are awaiting loan approval.
On the other hand, contingent offers carry a degree of uncertainty. The deal hinges on external factors, like the buyer’s ability to sell their current home or secure financing. This can introduce delays and, in some scenarios, result in the deal falling through. For sellers in a hurry to close or those with multiple offers on the table, a non-contingent offer might be more attractive.
Navigating Contingent Sales
For Sellers
If you’re considering a contingent offer, evaluate the risks and benefits. How strong is the buyer’s offer? What is the likelihood of their contingencies being met? It’s also wise to include a “kick-out” clause. This allows you to continue showing the property and accept other offers if the buyer’s contingencies are not met within a certain period.
For Buyers
Make your contingent offer as appealing as possible. If you’re including a sale contingency for your current home, having it already on the market, or better yet, under contract, can make your offer stronger. Being pre-approved for a mortgage and flexible with your contingencies can also make your offer more attractive to sellers.
The Bottom Line
Selling a house on contingent can introduce a layer of complexity to the transaction, but it’s a common practice in real estate. By understanding what contingencies are and how they work, both buyers and sellers can navigate these waters with confidence. For sellers, it’s about balancing the certainty of a sale with the potential for delays or complications. For buyers, it’s a matter of making their offer as strong and reassuring as possible. In the dance of real estate transactions, contingencies are the steps that, when navigated wisely, lead to a successful closing.
