When you are buying or selling a home, you may come across the term "contingent." This can be a confusing term, so we are going to break it down for you in this article. We will explain what contingent means in real estate, the different types of contingencies that can be included in a real estate contract, and what the implications of a contingent offer are.
In general, a contingent offer is one in which the buyer's purchase is subject to certain conditions being met. These conditions can vary, but they often involve the buyer needing to sell their own home, get a satisfactory home inspection, or secure financing. A contingent offer is not binding on either the buyer or the seller until all of the contingencies have been met. This gives both parties some flexibility to walk away from the deal if something unexpected happens.
In the next section, we will take a closer look at the different types of contingencies that can be included in a real estate contract. We will also discuss the implications of a contingent offer and how it can affect the buying and selling process.
what does contingent mean in real estate
Contingent offer is subject to conditions.
- Buyer must sell their own home.
- Satisfactory home inspection.
- Secure financing.
- Appraisal meets value.
- No liens or encumbrances.
- Satisfactory insurance.
- No undisclosed defects.
- Environmental clearances.
Contingencies protect buyer and seller.
Buyer must sell their own home.
One common contingency in real estate contracts is that the buyer's purchase is contingent on the sale of their own home. This means that the buyer cannot close on the new home until they have sold their current home.
- Contingency protects the buyer.
This contingency protects the buyer from being stuck with two mortgages if they are unable to sell their current home.
- Contingency can delay closing.
However, this contingency can also delay the closing on the new home, as the buyer may need to wait for their current home to sell before they can move forward with the purchase of the new home.
- Sellers may be less likely to accept contingent offers.
Sellers may be less likely to accept contingent offers, as they may not want to wait for the buyer to sell their current home before they can close on the sale of their own home.
- Negotiate a contingency that works for both parties.
If you are a buyer who needs to sell your own home before you can purchase a new home, you should work with your real estate agent to negotiate a contingency that works for both you and the seller.
Contingencies can be a helpful way to protect both buyers and sellers in a real estate transaction. However, it is important to understand the implications of a contingency before you agree to one.
Satisfactory home inspection.
Another common contingency in real estate contracts is that the buyer's purchase is contingent on a satisfactory home inspection. This means that the buyer can hire a professional home inspector to examine the property and identify any major issues.
The home inspector will typically look for problems with the home's structure, foundation, roof, plumbing, electrical system, and HVAC system. They will also check for any signs of water damage, mold, or infestation.
If the home inspector finds any major issues, the buyer can either negotiate with the seller to have the issues repaired or they can walk away from the deal. A satisfactory home inspection contingency protects the buyer from purchasing a home with major problems that could be costly to repair.
However, it is important to note that a home inspection is not a guarantee that the home is perfect. Even the most thorough home inspection may not uncover every single issue with a home.
If you are considering buying a home, it is important to have a home inspection contingency included in your contract. This will give you the peace of mind of knowing that you can walk away from the deal if the home does not meet your expectations.
Secure financing.
In order to purchase a home, most buyers need to secure financing from a lender. This means that the buyer will need to get pre-approved for a mortgage loan.
- Contingency protects the buyer.
A financing contingency protects the buyer from being stuck in a contract if they are unable to secure financing.
- Contingency can delay closing.
However, this contingency can also delay the closing on the home, as the buyer may need to wait for the lender to approve their loan.
- Sellers may be less likely to accept contingent offers.
Sellers may be less likely to accept contingent offers, as they may not want to wait for the buyer to secure financing before they can close on the sale of their home.
- Negotiate a contingency that works for both parties.
If you are a buyer who needs to secure financing before you can purchase a home, you should work with your real estate agent to negotiate a contingency that works for both you and the seller.
Contingencies can be a helpful way to protect both buyers and sellers in a real estate transaction. However, it is important to understand the implications of a contingency before you agree to one.
Appraisal meets value.
When a buyer is getting a mortgage to purchase a home, the lender will typically require an appraisal to ensure that the home is worth the amount that the buyer is paying for it. The appraisal is an independent assessment of the home's value, and it is conducted by a licensed appraiser.
If the appraisal comes in at or above the purchase price, then the loan will be approved. However, if the appraisal comes in below the purchase price, then the buyer may have to come up with the difference in cash or negotiate with the seller to lower the price of the home.
A contingency that the appraisal meets value protects the buyer from having to pay more for a home than it is worth. It also protects the lender from making a loan on a home that is worth less than the amount of the loan.
If you are considering buying a home, it is important to have an appraisal contingency included in your contract. This will give you the peace of mind of knowing that you can walk away from the deal if the appraisal does not come in at or above the purchase price.
Appraisal contingencies are becoming increasingly common in today's market, as buyers are becoming more cautious about overpaying for homes.
No liens or encumbrances.
A lien is a legal claim against a property. It can be placed on a property for various reasons, such as unpaid taxes, unpaid HOA fees, or a home equity loan. An encumbrance is a claim against a property that limits its use or enjoyment. It can be placed on a property for various reasons, such as a restrictive covenant or an easement.
- Contingency protects the buyer.
A no liens or encumbrances condition protects the buyer from purchasing a property that has any legal claims or restrictions against it.
- Contingency can delay closing.
However, this condition can also delay the closing on the property, as the seller may need to satisfy any liens or encumbrances before the sale can be finalized.
- Sellers may be less likely to accept contingent senti
Sellers may be less likely to accept offers that are contingent on there being no liens or encumbrances on the property, as they may not want to deal with the hassle and expense of satisfying any claims or restrictions.
- Negotiate a condition that works for both parties.
If you are a buyer who is concerned about purchasing a property that has any legal claims or restrictions against it, you should work with your real estate agent to negotiate a condition that works for both you and the seller.
No liens or encumbrances contingencies are relatively common in real estate transactions. They can help to protect buyers from purchasing properties that have any legal claims or restrictions against them.
Satisfactory insurance.
In most real estate transactions, the buyer is required to purchase homeowners insurance. This insurance protects the buyer from financial loss in the event that the home is damaged or destroyed. The seller is typically required to provide proof of insurance that meets the lender's requirements.
A satisfactory insurance contingency allows the buyer to cancel the contract if they are unable to obtain homeowners insurance at a reasonable cost. This contingency is especially important for buyers who are purchasing a home in a high-risk area, such as a flood zone or an area that is prone to wildfires.
If you are considering buying a home, it is important to have a satisfactory insurance contingency included in your contract. This will give you the peace of mind of knowing that you can walk away from the deal if you are unable to obtain homeowners insurance.
Here are some of the things that a satisfactory insurance contingency typically covers:
- The amount of coverage
- The type of coverage
- The cost of the insurance
- The deductible
- The insurance company
Your real estate agent can help you to negotiate a satisfactory insurance contingency that protects your interests.
Satisfactory insurance contingencies are becoming increasingly common in today's market, as buyers are becoming more aware of the importance of having adequate insurance coverage.
No undisclosed defects.
A no undisclosed defects contingency allows the buyer to cancel the contract if they discover any major defects in the property that were not disclosed by the seller.
This contingency is especially important for buyers who are purchasing a home that is being sold "as is." In an "as is" sale, the seller is not required to make any repairs to the property before the sale. This means that the buyer is taking on the risk of any unknown defects.
A no undisclosed defects contingency can help to protect the buyer from purchasing a home that has major problems that they were not aware of.
Here are some examples of undisclosed defects that could be covered by a no undisclosed defects contingency:
- Structural damage
- Major plumbing or electrical problems
- Roof leaks
- Mold or asbestos
- Termite infestation
A no undisclosed defects contingency typically gives the buyer a certain amount of time after the closing to inspect the property and discover any defects. If the buyer discovers any major defects, they can cancel the contract and receive their earnest money deposit back.
No undisclosed defects contingencies are becoming increasingly common in today's market, as buyers are becoming more aware of the importance of protecting themselves from purchasing a home with major problems.
No undisclosed defects contingencies can be a helpful way to protect buyers from purchasing a home that has major problems that they were not aware of.
Environmental clearances.
In some cases, a buyer may require that the seller obtain environmental clearances before the sale can be finalized. This is especially common in areas where there is a risk of contamination, such as near a landfill or a chemical plant.
- Contingency protects the buyer.
An environmental clearances contingency protects the buyer from purchasing a property that is contaminated or has other environmental hazards.
- Contingency can delay closing.
However, this contingency can also delay the closing on the property, as the seller may need to conduct environmental testing and obtain permits before the sale can be finalized.
- Sellers may be less likely to accept contingent offers.
Sellers may be less likely to accept offers that are contingent on environmental clearances, as they may not want to deal with the hassle and expense of obtaining these clearances.
- Negotiate a contingency that works for both parties.
If you are a buyer who is concerned about purchasing a property that is contaminated or has other environmental hazards, you should work with your real estate agent to negotiate a contingency that works for both you and the seller.
Environmental clearances contingencies are becoming increasingly common in today's market, as buyers are becoming more aware of the importance of protecting themselves from purchasing a property that has environmental hazards.
FAQ
Here are some frequently asked questions about contingencies in real estate contracts:
Question 1: What is a contingency in a real estate contract?
Answer 1: A contingency is a condition that must be met before the sale of a property can be finalized. Contingencies can be included in the contract to protect both the buyer and the seller.
Question 2: What are some common contingencies that are included in real estate contracts?
Answer 2: Some common contingencies include the buyer's ability to sell their current home, a satisfactory home inspection, the buyer securing financing, the appraisal meeting the value of the home, no liens or encumbrances on the property, satisfactory insurance, no undisclosed defects, and environmental clearances.
Question 3: Why would a buyer include a contingency in a real estate contract?
Answer 3: Buyers include contingencies in real estate contracts to protect themselves from financial loss in the event that something unexpected happens. For example, a buyer may include a contingency that allows them to cancel the contract if they are unable to sell their current home.
Question 4: Why would a seller include a contingency in a real estate contract?
Answer 4: Sellers may include contingencies in real estate contracts to protect themselves from being stuck in a contract with a buyer who is unable to close on the sale. For example, a seller may include a contingency that allows them to cancel the contract if the buyer is unable to secure financing.
Question 5: What happens if a contingency is not met?
Answer 5: If a contingency is not met, the buyer or seller can cancel the contract. The earnest money deposit will typically be returned to the buyer.
Question 6: How can I negotiate a contingency that works for both the buyer and the seller?
Answer 6: Buyers and sellers should work with their real estate agents to negotiate a contingency that works for both parties. This may involve compromising on the terms of the contingency or finding a creative solution that meets the needs of both parties.
Question 7: Are contingencies common in real estate contracts?
Answer 7: Contingencies are very common in real estate contracts. In fact, it is rare for a real estate contract to not include any contingencies.
Closing Paragraph for FAQ:
Contingencies can be a helpful way to protect both buyers and sellers in a real estate transaction. However, it is important to understand the implications of a contingency before you agree to one.
In the next section, we will provide some tips for negotiating contingencies in real estate contracts.
Tips
Here are some tips for negotiating contingencies in real estate contracts:
Tip 1: Be specific.
When you are negotiating a contingency, be as specific as possible about the terms of the contingency. This will help to avoid any misunderstandings later on.
Tip 2: Be reasonable.
When you are negotiating a contingency, be reasonable in your demands. If you are too demanding, the other party may simply walk away from the deal.
Tip 3: Be willing to compromise.
In most cases, you will need to be willing to compromise in order to reach an agreement on a contingency. This may mean giving up some of your demands or finding a creative solution that meets the needs of both parties.
Tip 4: Get everything in writing.
Once you have reached an agreement on a contingency, make sure to get everything in writing. This will help to protect you in the event that there is a dispute later on.
Closing Paragraph for Tips:
By following these tips, you can increase your chances of negotiating a contingency that works for both you and the other party.
In the next section, we will provide a conclusion to our discussion of contingencies in real estate contracts.
Conclusion
Contingencies can be a helpful way to protect both buyers and sellers in a real estate transaction. However, it is important to understand the implications of a contingency before you agree to one.
Some of the key points to keep in mind about contingencies include:
- Contingencies are conditions that must be met before the sale of a property can be finalized.
- There are many different types of contingencies that can be included in a real estate contract.
- Contingencies can protect buyers from financial loss in the event that something unexpected happens.
- Contingencies can protect sellers from being stuck in a contract with a buyer who is unable to close on the sale.
- It is important to negotiate a contingency that works for both the buyer and the seller.
- Contingencies are very common in real estate contracts.
Closing Message:
If you are considering buying or selling a home, it is important to work with a real estate agent who can help you to understand the implications of contingencies and negotiate a contingency that works for you.