What Does Contingent Mean in a Real Estate Listing? 2023

Are you curious about what a "contingent" offer in real estate really means? We share everything you need to know about contingencies and how they can impact both buyers and sellers in a real estate deal.

What does contingent mean on realtor.com and other listing sites?

A contingency is a legal clause or condition that must be met before a real estate transaction can be completed. It's a way to protect the interests of both the buyer and the seller in a transaction. Contingencies allow either party to back out of the deal without penalty if certain conditions aren't met.

In simpler terms, a contingency is a condition that must be satisfied before the sale of the property can be completed. For instance, a buyer may include a financing contingency in the contract that states that the sale is contingent on the buyer securing a mortgage loan for the property. If the buyer fails to obtain financing within the specified time frame, they may back out of the deal without penalty.

Examples of common contingencies in real estate contracts

There are several common contingencies that are typically included in a real estate contract. These include:

Financing contingency: The sale of the property is contingent on the buyer securing financing. This contingency protects the buyer in case they are unable to obtain financing for the property.
Home inspection contingency: The sale is contingent on the property passing a home inspection. This contingency allows the buyer to back out of the deal if the home inspection reveals major issues with the property.
Appraisal contingency: The sale is contingent on the property appraising for at least the purchase price. This contingency protects the buyer by ensuring that they are not overpaying for the property.
Sale of current home contingency: The sale is contingent on the buyer selling their current home. This contingency allows the buyer to back out of the deal if they are unable to sell their current home.
Title contingency: The sale is contingent on the title of the property being free and clear of any liens. This contingency protects the buyer by ensuring that there are no outstanding debts or liens on the property.

How are contingencies included in a real estate contract?

Contingencies are typically included in the purchase agreement or contract between the buyer and seller. The contingency clause outlines the specific conditions that must be met for the transaction to proceed. The clause may also specify the time frame for meeting the conditions, as well as the consequences if the conditions aren't met. It's important for both the buyer and the seller to carefully review and negotiate the contingency clauses in the contract to ensure that their interests are protected.

Why are contingencies used in real estate?

When it comes to buying or selling a home, contingencies are an important aspect of the process that can provide protection and negotiating leverage for buyers, as well as transparency and assurance for sellers. However, there are also potential drawbacks to contingencies that both parties should be aware of before entering into a transaction. In this article, we will explore the benefits of contingencies for buyers and sellers, as well as the potential risks that they may pose.

Benefits for buyers

Protection: Contingencies protect the buyer from unforeseen circumstances, such as discovering major issues with the property during a home inspection, or being unable to secure financing for the property. Without contingencies, buyers would risk losing their earnest money deposit or facing legal action if they are unable to complete the transaction due to circumstances outside their control.
Negotiating leverage: Contingencies give buyers negotiating leverage when making an offer on a property. A buyer who includes contingencies in their offer can back out of the deal if the conditions aren't met, which puts pressure on the seller to meet the buyer's demands in order to complete the transaction.

Benefits for sellers

Protection: Contingencies can protect sellers from buyers who may not be able to complete the transaction. For example, if a buyer includes a financing contingency in their offer, the seller can rest assured that the buyer has the necessary financing in place to complete the transaction.
Transparency: Contingencies can help to establish transparency between the buyer and seller, as they outline the specific conditions that must be met for the transaction to proceed. This can help to prevent misunderstandings or disputes between the parties.

Drawbacks of contingencies

Risk for sellers: Contingencies can pose a risk for sellers, as they may delay the transaction or prevent it from closing altogether. For example, if a buyer includes a home inspection contingency and the inspection reveals major issues with the property, the seller may need to make costly repairs or renegotiate the terms of the sale.
Lengthy closing process: Contingencies can also lead to a lengthier closing process, as both parties must meet the conditions outlined in the contingency clause before the transaction can be completed. This can be frustrating for both buyers and sellers who are eager to close the deal.

Contingencies are an important tool for both buyers and sellers in a real estate transaction. They provide protection and negotiating leverage for buyers, while also establishing transparency and protection for sellers. However, it's important for both parties to carefully review and negotiate the contingency clauses in the contract to ensure that their interests are protected and the transaction can proceed smoothly.

Conclusion

In summary, contingencies play an important role in real estate transactions. They allow buyers to protect themselves from unforeseen issues that may arise during the process of buying a home, and can provide a safety net in case things do not go as planned. However, it is important for both buyers and sellers to carefully consider the contingencies in the contract and determine what conditions are necessary for a successful transaction. By doing so, they can help to ensure that the transaction is completed smoothly and to the satisfaction of all parties involved.

Whether you are a buyer or a seller, it is important to have a basic understanding of contingencies and how they work. By working with an experienced real estate agent or attorney, you can ensure that the contingencies in your contract are reasonable and will protect your interests. With the right approach, contingencies can be an important tool for successfully completing a real estate transaction.