For homebuyers, a real estate contingency can be highly confusing. What you need to know is that the more contingencies you waive, the more appealing your offer will be to a seller. And in a competitive market, that can make all the difference.
What does contingent mean?
Say you’re checking out real estate listings and bam! you spot your dream home, but its status is listed as “contingent.” Does that mean it’s sold?
Not exactly. ‘Contingent’ means that an offer is accepted, you can still try and put down your offer too. The accepted offer has a sale contingency attached and may fall through. Simply put, the buyer must sell their current home first. And that may not happen.
Quick note: Sometimes, even if a listing does’t specify that the seller is accepting back-up offers, you can always submit one. Listings are considered as ‘active’ unless their status changes to ‘pending‘ or ‘sold’.
Then what is a real estate contingency?
A real estate contingency is a condition that must be met for a home purchase to go through. And for the contract to become binding. A real estate contingency is a clause that allows buyers to walk away from their home offer without losing their money. Sellers can also have contingencies.
Please note: This article explores buyer contingency.
Because contingencies provide a way out of buying a home, they decrease certainty for the seller. Their home isn’t quite sold when they accept a contingent offer. That’s why sellers don’t like contingencies.
Here are the most common types of contingencies?
Inspection (or Due Diligence) Contingency
Every buyer has the right to a timely (usually 5-7 days from offer acceptance) professional home inspection. An inspection can provide the information needed to negotiate repairs or a better price, or allow the buyer to cancel the contract if the cons outweigh the pros.
This is often considered one of the most important contingencies, because an inspection can expose major problems with the property.
A suggestion from Flyhomes would be to waive a contingency if you’re in a competition. Make sure you don’t neglect an inspection. Flyhomes Cash Offer comes with the inspection, so if you’re looking to buy before you sell or buy a home, you can always get in touch with us.
What is an appraisal contingency?
If you end up paying more than the home’s worth, it leads to an appraisal contingency.
Whether there’s a contingency or not, a home will always be appraised before closing if you’re getting a mortgage loan. If the home appraisal comes lower than your offer, you have to arrange for additional funds to cover the difference. This can be painful. So an appraisal contingency requires that the offer price has to be equal or less than the home’s appraised value. The appraisal will validate that you’re not paying too much. And if you are paying too much, you can either re-negotiate or walk away.
What Flyhomes suggests is waive it. Flyhomes Mortgage does a pre-appraisal free of charge before you put down the offer.
Financing (or Mortgage) Contingency
A financing contingency means that an offer depends upon the buyer being able to secure a mortgage loan (sometimes at a specified rate), usually within a set period and from a specific lender.
This contingency makes sure you won’t lose your earnest money (which is put down before closing) if you fail to qualify for a mortgage. In the traditional home buying model, waiving it is risky because that earnest money is on the line.
Sale Contingency
This is the one that makes a listing show up as “contingent.” It gives a buyer a certain amount of time to sell their home in order to finance the purchase of their new home. The seller waits for the buyer’s first property to sell for at least the asking price.
Not surprisingly, sellers dislike this contingency because it comes with a big question mark.
If the seller receives another offer in the meantime, they can ask the buyer with the contingency to waive their contingency. If the buyer won’t or can’t do that, the seller is free to accept the second offer.
Title Contingency
Home purchase and sale contracts already include a contingency that the seller is required to provide a title that is “marketable,” meaning clear of liens, debts, and mortgages. The title company researches the title and won’t provide title insurance if it isn’t clean.
An additional title contingency addendum gives the buyer a right to review the title report (which includes the home’s full ownership history, including easements shared with neighbors or accessible by public utilities).
This is usually done in cases where the responsibility for shared areas, such as a shared driveway, isn’t clear. It’s a way to clear up questions about these responsibilities.
Ultimately, the decision whether or not to waive contingencies is up to you. Flyhomes has a team of experts that will help you through understanding contingencies and quicken your home buying process. Just sign up!
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