Contingent is a term that you may hear in a real estate office regarding a home offer. When an offer on a home has been officially placed, and the seller accepts it, the final sale is “contingent” upon criteria. This specific list of contingencies may include clauses in the sales contract, or other criteria that typically fall under three categories. These main contingency categories are an appraisal, home inspection, and mortgage approval.
Real estate contingencies are usually put in place to offer homebuyers a way to back out of a sale if something goes wrong during the closing process. A seller may also block out offers from other buyers until the contingent offer is settled in one way or another.
If you are questioning, “What does contingent mean on a house for sale?” and need more information about the term and the processes it includes, read on.
What Does Contingent Mean in Real Estate?
The word contingent has many meanings, however, in real estate, the words are usually referring to the three categories mentioned above. Here are the three most common categories of real estate contingency clauses:
This is a type of contingency designed to protect the buyer. Used to ensure the property’s value is within a reasonable, specified amount, an appraisal contingency works as a clause in home purchasing contracts.
If a property does not appraise for a minimum specified amount, a contract with an appraisal contingency can be terminated. Under an appraisal contingency, a home must meet the agreed-upon price, or higher than when appraised. If not, the earnest money is almost always refunded to the home buyer.
Note: No matter what type of home loan program you choose, a lender will always require an appraisal. An appraisal contingency for conventional loans typically lasts between 21-30 days, so, plan for the lag in processing.
Especially important for home buyers, an inspection contingency protects the right to a professional home inspection before finalizing the sale. After the earnest money has been received, if anything goes wrong, a home inspection contingency allows the buyer to negotiate the price, or halt the sale.
Because personal safety is also a reason to include a home inspection contingency, it is a good idea to use this clause during the home buying process. Generally, it is considered a must-have clause in a home sales contract because home inspections are also a tool used to rule out potential dangers, and identify repairs before you move in.
Home sellers beware: buyers may attempt to sign a property mortgage without having the money to back up their offer. However, with a mortgage contingency in place, the homebuyer and seller are both protected from a real estate sale gone bad.
With this contingency in place, the homebuyer will have a specific amount of time to get a loan to cover the mortgage. Once the offer is accepted, the buyer can still lawfully walk away from the sale with their down payment, but they may not be able to get a lender to commit. A mortgage approval contingency can also be waived, which is common for cash offers.
We hope we managed to clarify the question, “What does contingent mean when buying a house?” Many prospective home buyers do not know what a contingent home offer is until they ask an experienced real estate agent. Talk to a member at the offices of Jeff Barchi today, and ask any questions you have. You can discuss what contingencies may apply when making an offer on your dream home.