When you buy or sell an asset worth hundreds of thousands — or millions — of dollars, the legal contracts get complex. Quickly.
And while “pending” and “contingent” may sound similar to laypeople, they mean slightly different things in real estate legalese. You need to understand that difference as a real estate investor, given the huge dollar amounts involved.
What Does Contingent in Real Estate Mean?
In real estate contracts, the term “contingent” generally refers to a property that is under contract, but the sale is contingent upon the completion of certain tasks or actions. These actions may involve the buyers obtaining financing for the property, completing a home inspection, or having a property investigated for lien or title issues.
Contingent offers usually involve some type of negotiation between the buyer and seller. The process includes the buyer making an initial offer with contingencies and deadlines, and the seller either accepting, rejecting, or making a counteroffer. If the buyer and seller ultimately reach an agreement on the contract contingencies and follow through with them, then the offer will become firm and the sale will move forward.
Keep in mind that contingent offers are more complicated than other offers, and that buyers should have an experienced real estate agent to help them navigate the process. Additionally, buyers should read all terms and conditions carefully before signing anything and prepare to walk away from a contingent offer if it doesn’t meet their expectations.
It happens in real estate all… the… time.
Types of Contingencies in Real Estate
Essentially, a contingency in real estate is an event that must occur in order for the sale to go through. Contingencies come in many forms and exist to protect either the buyer or the seller in a real estate transaction. Typically, contingencies provide a way out of the agreement if certain conditions aren’t met.
You can divide the types of contingencies in real estate into two main categories — buyer contingencies and seller contingencies. They include:
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- Financing contingency: A financing contingency is a type of contingency that is specific to the buyer. It states that the sale of the home is contingent on the buyer being able to secure financing for the purchase.
- Home inspection contingency: A home inspection contingency is a type of contingency that allows the buyer to have a professional home inspector go through the property and reveal any issues that may need to be addressed before the sale is final.
- Appraisal contingency: An appraisal contingency requires the buyer to have the home appraised for a certain value. If the property does not appraise for at least the purchase price, then the sale will not go through.
- Sale contingency: You use a sale contingency when the seller doesn’t wish to move unless they have a place to move to. This contingency allows them to accept an offer on the current home, but the sale is contingent on the seller finding a new home to purchase.
- Loan contingency: A loan contingency’s intention is to protect the seller in the event the buyer is unable to get financing. This is a common contingency to use in cases where the seller is still in the process of paying off their loan and need to make sure that all of the funds will be available to them at the time of sale.
- Title contingency: This contingency involves the buyer verifying that the seller has the legal right to sell the property and entails a clear title history. Additionally, it also serves to protect buyers from potential issues such as existing liens against the property.
- Active-first right contingency: These contingencies provide an agreement between the buyer and seller that if the seller receives a higher offer, they must first offer the property to the buyer with the contingency offer, with the right to accept or decline.
- Active-kick out contingency: Unlike first right contingencies, these require the buyer to remove their contingencies by a certain date or give the seller the right to go back on the market for other offers.
Understanding the different types of contingencies in real estate can help both buyers and sellers to make sure that their transactions are secure and that all parties are protected. Contingencies essentially provide an escape clause for either party if certain conditions aren’t met. Plus, they help to address any issues that may arise before the sale is complete.
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What Does Pending Mean?
Pending in real estate means that a home or property is under contract. The buyer has offered to pay a certain amount of money and the seller has accepted the offer. Pending in real estate is a period of time between when a contract is agreed upon by both parties and the close of the sale when the deed is transferred.
The biggest difference between contingent and pending real estate is that pending means the buyer has already come to an agreement with the seller and can proceed with the detailed closing process. Contingent means that the sale is uncertain since one or more conditions must be met before the sale can move forward.
Pending Types in Real Estate
Pending is an important term in the real estate industry that denotes a transitional stage for a home being sold. Properties are listed as pending for a number of reasons, each of which comes with its own implications and drawbacks.
When it comes to pending types in real estate, there are three main categories. These are:
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- Pending — taking backups: This means that the buyer and seller have come to an agreement and the contract has been accepted, however, the seller is still taking other offers just in case the buyer backs out of the agreement.
- Pending — short sale: A short sale pending transaction means that the property is listed for less than the seller owes on the mortgage. The original mortgage lender must approve the deal and agree on the price prior to the sale being completed. In this type of transaction, the sales price must match the approval amount of the loan balance.
- Pending — more than four months: This status is almost always a red flag for buyers, since it indicates that an offer has been accepted on the property, but the home has been in sale limbo for more than four months. This could be the result of any number of issues, but the most common are issues with the title or the sale falling through due to financing problems.
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Can You Make an Offer on Contingent or Pending Properties?
When you’re shopping for a property, you may see some listings marked contingent or pending. Knowing the difference between contingent and pending is important before making an offer, as each of these terms has different implications.
Generally, when a property is pending it has an accepted offer from a buyer that must be fulfilled before any other offers can be submitted. In most cases, you should assume a pending property is not available for viewing or offers from other buyers.
Contingent properties, however, may be available for viewing and offers. When a property is contingent, it means the current buyers have an accepted offer, but the sale is dependent on certain conditions being fulfilled. For example, if you make an offer contingent on passing a home inspection, that means the offer will only move forward if it passes the inspection.
Final Thoughts
What does contingent in real estate mean?
That the sales contract hinges on certain conditions being met.
While the terms “contingent” and “pending” may appear similar on the surface, they’re actually quite distinct in meaning and purpose. In a contingent situation, the offer is contingent on certain requirements being met. For example, if the sale is contingent on a home inspection, the transaction isn’t complete until the inspection is complete and all conditions are satisfied. A pending sale, on the other hand, is a sale that has already been agreed upon but has not yet been finalized.
Understanding the small nuances between them can save time, money, and effort for both the buyer and seller. With a better grasp of the specifics of both situations, anyone involved in the process will be prepared to make more informed decisions with confidence.♦
Still have questions about what contingent means in real estate? Ask in the comments below!
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You need contingencies in your real estate contracts, given the huge amount of money involved. Be complacent at your own risk.
Amen Ann!
Should there be a penalty if the other party failed to complete the contingencies for the time wasted and loss opportunity to sell/buy to others?
Hi Mark, sometimes there is, written into the contract. But normally no, that’s the purpose of the contingency is to let one party out if a condition isn’t met as expected.
Title contingency is an excellent tool against fraudsters at online off-market platforms.
Interesting point Sharon! But fraudsters aren’t likely to return your earnest money deposit regardless of the real estate contingency.
If you want to buy and sell assets worth six or seven figures, you should know the terminology. If you don’t, you’re setting yourself up to lose money.
I hear you Jake!
This falls under “things I didn’t know that I didn’t know.” Good stuff as always.
Thanks Greg!