If you’re buying or selling a home, you’ve probably heard the term “contingent” or “contingent sale.” The real estate process can be difficult, with so many terms to keep up with. However, it is important to understand what a contingent sale is in real estate, so that you can prepare if you are ever faced with it.
So What is a Contingent Sale?
A contingent sale can be challenging to deal with, but they’re manageable if done properly with an experienced Realtor. As a real estate term, a contingent sale can often mean that a buyer is unable to purchase a property without selling one they already own due to financing, or it could also be based on other types of contingencies. A contingent sale is not the same as a pending sale.
So what exactly are these contingencies?
They are the clauses in your purchase/sale contract that give you an out or the right to cancel the contract if something unforeseen or unexpected arises.
Types of contingencies
Selling another property
A contingency can sometimes mean that a buyer is unable to purchase a property without selling one they already own. This is called a Hubbard Clause.
Mortgage approval
Some buyers may have a contingency that gives them time to secure a mortgage approval, or the finance required. If they are not able to, they are able to walk away. It is not always the case if you fell for a common mortgage myth, as this may be your responsibility.
House inspections
House inspection contingencies enable the buyers to seek an inspection on the property within a specified period of time. The outcome of the inspection could mean that the buyer is allowed to ask for repairs to be completed, negotiate the price of the property, or walk away from the sale.
Completion of tasks
Some other contingencies that buyers may have are mortgage approval and inspections. There are also certain things the seller must meet/improve/accomplish with the house before the sale moves on up to pending – i.e. the buyer’s offer is contingent on the seller completing these tasks.
Are contingencies good?
Contingencies are both good and bad, depending on whether you are buying or selling a property. They can either serve as a clause to help and protect you, or cause risk and uncertainty in the real estate transaction.
Contingencies as a buyer
As a buyer, contingencies are great. They can also help protect you from losing your deposit money and can give you leverage to motivate the seller to help you deal with whatever comes up.
Contingencies as a seller
Sellers aren’t so fond of contingencies for obvious reasons. That’s why, in a very competitive market, you might need to avoid them or at least minimize them as much as possible.
Should I accept a Contingent Offer?
There is no right or wrong answer on this one. Every situation is unique. While contingent offers can pose an additional risk to a seller, there are times when it makes sense for both the buyer and the seller to compromise. Talk with your real estate agent to understand what the contingencies are in your contract and what the extra steps will be necessary to bring you to a stress-free closing.
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