Generally speaking, a contingency is a condition that must be met before a contract is legally binding.
But when you discover a house marked as contingent during a home search, the word means something more specific: an offer has been made on the house, but certain criteria must be met before the deal closes.
Contingencies come in many forms and are designed to protect buyers and sellers from having to follow through on a home purchase that's not in their best interest. So when you see a house marked as contingent, it's far from a done deal.
Read on to learn about the different types of contingencies and what they could mean for you as a potential buyer.
What does contingent mean?
Seeing a property listed as "contingent" may mean another party has already made an offer on the home, but it doesn't mean you’re out of luck as a potential bidder.
The parties involved are waiting to learn whether the contingencies outlined in the home purchase contract will be met.
Common contingencies generally involve satisfying the buyer's demands around:
- Inspecting the property to ensure the home is sound
- Ensuring the home's appraised value is in line with the asking price
- The property having a clean title, free from disputes or financial complications
- Being able to walk away from the sale if they're not able to secure financing
- Being able to sell a current home before closing to avoid carrying two mortgages
However, to protect sellers from a sale dragging on indefinitely, contingencies generally must be met within an agreed-upon time frames. Given the complexities of closing a home sale, offers with contingencies can — and sometimes do — fall through.
So if you love a house marked as contingent, it doesn't hurt to offer a backup. Ensure you work with a good agent to craft the offer and advocate on your behalf to ensure it's truly worth your time.
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Types of contingencies in real estate
Here are some of the most common contingencies involved in a home purchase.
Home inspection contingency
A home inspection contingency permits a buyer to conduct an independent inspection of the home to ensure its condition and hunt for any deal-breakers — such as roofing, electrical, and plumbing issues.
The inspection contingency is the most common in real estate, but according to recent data from NAR, only 19% of buyers waive this contingency.
Suppose a buyer isn't satisfied with the inspected state. In that case, the home inspection contingency allows them to walk away from the deal without losing their earnest money deposit — as long as it's within the specified inspection window, usually around 7 days from signing the purchase agreement. The window can be longer or shorter depending on whether you're operating in a buyer's or seller's market.
Often, rather than walk away, a buyer will use the inspection report to negotiate for the seller to pay for the repairs or reduce the asking price on the home.
Best practices post-home inspection
As a seller, you’re not legally required to fix anything found in the home inspection. But, it's in a seller's best interest to resolve or negotiate a repair credit or price reduction for reasonable requests after a home inspection to avoid buyers canceling the purchase contract.
“Figuring out what to do after a home inspection can feel complicated,” states Eric Bramlett, realtor and owner of Bramlett Real Estate. However, an experienced real estate agent can help guide the negotiations. “If the inspection finds big problems, buyers must focus on safety first. Ask the seller to fix critical issues or give the buyer money to fix it themselves.”
Yet, inspections that find several smaller problems can also add up, costing buyers later. Crystal Olenbush, real estate expert at AustinRealEstate.com, suggests “coming at it as a team looking for mutual gain. Even a minor ask can make both parties happier. A small credit lets my clients feel heard while costing the seller little.”
Home-inspection related contingencies
Home inspections are also called due diligence contingencies. These provide buyers the right to have a home’s interior and exterior inspected by a professional home inspector — making the costs of home inspections worth it.
While a general home inspection will cover most significant issues like plumbing, electrical, and structural problems, some buyers may also need specialized inspections if the general inspection suggests certain issues like:
🏠 Mold Specialist
If the general inspection reveals moisture, mold, or toxins issues, a mold specialist may be needed to evaluate the home.
🏠 Termite Inspection
If a home inspection finds extensive termite damage or is in an area where termites are common, a lender may require a termite inspection. A buyer can walk away from the deal if there's an issue.
🏠 Asbestos Inspection
You may be required to have an asbestos inspection if you’re considering purchasing a home built before 1976.
🏠 Cost-of-repair Contingency
This contingency caps the amount of money it could take to fix the issues found during the home inspection. If the estimated cost of the repairs exceeds this amount, the buyer can back out.
Financing contingency
A buyer must be able to secure acceptable financing by a particular date in the home-buying process. Typically, that means qualifying for a home mortgage loan.
A buyer without secure financing can't buy the property and must drop out of the process.
According to an industry survey, a buyer’s financing falling through is the second most common reason for a seller to cancel a deal. This accounted for 27% of the canceled deals.
Appraisal contingency
A home appraiser will evaluate the property and determine its fair market value. If the appraised value exceeds the purchase price, a buyer with an appraisal contingency may back out of the transaction. The buyer can also attempt to negotiate a lower price for the property.
The buyer typically pays for the appraisal.
However, 19% of buyers waived this contingency as a concession to the seller suggesting sellers may still have the advantage in many markets.
Clear title contingency
The clear title contingency allows the buyer to back out of the home purchase if the title to the house they’re buying isn't free and clear. For instance, a title might be found to have a lien against the property, or the property's boundaries may be in dispute.
» READ: What to Know BEFORE Buying a House With a Lien Against It
While it may be tempting to waive this in competitive markets, the buyer can potentially be responsible if the title isn’t clear.
“Waiving this can lead to unexpected legal issues such as liens or ownership disputes,” cautions Scott Beloian, broker and owner at Westcoe Realtors. “A transaction I managed revealed an undisclosed easement that could have significantly affected future property use. Ensuring a title is clear is non-negotiable for safeguarding investments.”
Home sale contingency
A buyer may include a contingency that the sale only goes through if the buyer can sell their existing home.
A seller can also include a contingency that they'll only sell if they can buy a new property.
According to a recent survey of agents, about 36% of clients are trying to buy and sell a home simultaneously, and about 20% of contracts include a home sale contingency.
How often do contingent offers fall through?
According to NAR, four percent of all home-purchase contracts were terminated in April 2024, similar to April 2023.[1]
Additionally, only 11% of contracts involved a delayed settlement, with 6% involving appraisal issues. The good news for buyers and sellers is that most pending sales succeed through closing as expected.
So while it's rare to see contracts canceled due to contingencies, the most common reasons include:
Home Inspection Issues
Major surprises during the home inspection process are the most common reason for a home sale to be terminated. Significant problems that may delay or lead to canceled contracts often involve safety hazards, like issues with electrical systems, plumbing, or structural and roofing concerns. Buyers looking at older or historic homes may also encounter problems with asbestos or mold.
Following a home inspection, the negotiation process can lead to deals falling through. For instance, if buyers and sellers can’t agree on new terms, the buyer can walk away. Sellers can cancel the agreement if the buyer's terms or demands are unreasonable.
Financing Issues
According to recent data by NAR, 80% of home buyers finance their home purchases.[2]
While most prospective buyers will have a mortgage preapproval when they make an offer, changes can occur between the preapproval and the start of the underwriting, impacting the buyer’s financing.
For instance, increasing interest rates can make the mortgage too expensive for the buyer’s budget. Changes in the buyer’s situation, like a decrease in their credit score, a job change, or a job loss, can also impact the mortgage approval process.
Appraisal discrepancies
When buyers are financing the home purchase with a mortgage, their lender will usually have an appraisal of the property to ensure its worth the purchase price because they will only loan up to the appraised amount.
If the appraisal is lower than the agreed-upon purchase price, the contract could be canceled unless the difference, or appraisal gap, can be resolved or the parties agree to a renegotiation.
» READ: The Ultimate Home Appraisal Checklist
Seller or Buyer Contingencies Unmet
Many home purchase agreements include contingencies from either the buyer or the seller. Most contingencies involve a time frame, so both parties must stay on top of deadlines. The deal may be terminated if these requirements aren’t met or met on time.
Some common contingencies that can result in deals falling through include the seller being unable to secure a new home in time, a buyer being unable to sell their existing home, or repairs not occurring in time.
Title Issues
A deal could fall if the title search reveals a lien on the property, unpaid property tax, boundary disputes, or other legal claims. If the title isn’t clear, the seller and buyer could try to agree on a way to resolve the issue and clear the title to ensure the buyer isn’t responsible for any of the problems. However, a buyer can cancel within the agreed period if a solution isn’t found.
» READ: 7 FAQs About Title Companies and What They Do at Closing
Can you make an offer on a contingent house?
Technically, yes, you can make an offer on a house marked as contingent.
However, home sellers aren't generally allowed to back out of a signed contract just to accept a better offer. Whether it's worth your time depends on the strength of the current contract and how strongly you feel about the house.
Suppose you're in love with a particular house already marked contingent. In that case, you can always have your realtor contact the seller to see how the sale is progressing and whether the seller is still entertaining backup offers.
Understanding the contingency statuses accompanying property listings can also help you assess whether you want to proceed.
What's the difference between contingent and pending?
The most significant difference between contingent and pending is where the home is in the home-purchase timeline. A home designated as contingent is earlier in the process than a pending home, but neither situation signals a done deal.
Buyers can still offer to buy a contingent or pending home, but be aware that these stages indicate that the home-buying process is underway with the initial buyer. When making an offer on a contingent or pending home, you'll have more hurdles, including some that are out of your control.
During the contingent status, the home is under contract. But all contingencies, or conditions, must be met before the contract is legally binding or the deal can fall through.
After the contingencies are dealt with, the house has a pending status. At this phase, there are typically fewer reasons for the sale to fall through, but homes marked “pending—taking backups” suggest the seller remains open to other offers.
FAQ
Are contingencies common?
Yes. According to a recent survey by Clever Real Estate, about 83% of buyers asked the seller for at least one concession. However, buyers want to be careful how many contingencies they include, especially in a seller’s market. A recent study by Homelight found that 21% of sellers turned down a buyer during negotiations for making too many contingencies in the offer.
Who’s most affected by contingencies?
Buyers. Typically, they have the most conditions to be met, or that they want met, when buying a home. Among the most common are home inspection, financial, and appraisal contingencies.
What’s the most common contingency in a home purchase contract?
The home inspection and appraisal contingencies. However, buyer’s may waive these contingencies to strengthen their offer in a seller’s market. According to recent data by NAR, about 19% of buyers waived the inspection contingency and 18% waived the appraisal contingency in April 2024.
Should I avoid looking at or making an offer on a contingent home?
Not necessarily. According to April 2024's Realtors Confidence Index Survey, four percent of home contracts fell through.
Your odds aren’t great. But if you fall for a house and want to bid against the existing offer that contains contingencies, an opportunity reopens roughly one out of every 25 times.