Real estate can be a complicated industry to navigate and understand, especially if you're a first-time homebuyer. One important term you may come across when buying or selling a home is “contingent.” So what does contingent mean in real estate and how can it affect transactions?
What is contingent in real estate?
What does contingent mean in real estate? It’s a term commonly used to describe a situation in which a potential buyer has made an offer to purchase a property, but the sale is dependent (or contingent) on certain conditions being met.
In order for a sale to be considered contingent, the buyer has to include certain stipulations in their offer. They must be satisfied for the sale to go through.
These conditions can include the sale of another property, the buyer obtaining financing, or the completion of certain inspections and repairs.
Contingent offers are often used when buyers are uncertain of their ability to purchase a property, but still want to have the opportunity to buy it if certain conditions are met.
How do contingent offers work?
When a buyer makes a contingent offer on a property, the seller has the option to either accept or reject it. If the seller accepts the offer, the transaction becomes binding and the buyer is expected to fulfill their end of the agreement.
If the buyer fails to meet the conditions laid out in the offer, the seller can typically choose to keep the buyer’s earnest money deposit and move on to other offers.
Also, in some cases, the seller may choose to negotiate with the buyer to modify the conditions of the offer in order to make it more attractive.
Ultimately, contingent in real estate is a way for buyers to secure a property while reducing their financial risk in the event that the conditions aren't met.
Common contingencies in real estate
What is a common contingency in real estate? There are a few popular types of contingencies you should know about:
- Home inspection contingency - it allows the buyer to have the property inspected by a qualified inspector to determine if there are any defects or repairs that need to be addressed. If the buyer isn't satisfied with the results of the inspection, they can choose to walk away from the deal without penalty.
- Financing contingency - thanks to it, the buyer can secure financing for the purchase of the property before moving forward with the deal.
- Appraisal contingency - this contingency in real estate allows the buyer to have the property appraised to ensure that the agreed-upon purchase price is in line with the current market value of the property. It’s a great alternative to a comparative market analysis. If the appraisal comes in lower than the purchase price, the buyer can renegotiate.
- Title contingency - if you want to review the title of the property to ensure that the seller has the legal right to transfer the ownership, you can benefit from this contingency and detect any issues early on.
- Attorney review contingency - thanks to it, you can have the contract reviewed by an attorney before signing. The attorney can inform you about any potential issues or risks associated with the deal. If you (as a buyer) aren't satisfied with the results of the attorney’s review, you can resign from finalizing the transaction.
Why is it worth using contingencies in real estate? The takeaway
What’s the contingent meaning in real estate? Contingent offers are used to protect buyers in case certain conditions aren't met. They allow buyers to secure a property while reducing their financial risk, should they need to back out of the transaction.
Thanks to understanding the contingencies and learning how they work, you can navigate the real estate market more effectively and make the best decisions for your needs.