Contingent and Pending Offer : Making Sense of Real Estate Terms

Meaning of Contingent and Pending Offer in Real Estate Explained

September 2nd, 2024

While browsing through houses, you may have encountered concepts like contingent and pending offer. These are stages that signify a house’s market status. If an agent lists a property as ‘contingent’, the seller has accepted an offer under some conditions and contingencies. On the other hand, pending refers to all conditions that are met and cleared and the sales that are close to completion. In this blog, we’ll discuss the role and importance of contingency and pending stages in the real estate market property listings.

Contingent Meaning in Real Estate

When an agent terms a property as contingent in real estate, it means that the seller has accepted an offer from a buyer, but the sale is subject to fulfilling certain requirements. These real estate terms, sometimes known as contingencies, usually refer to things like the buyer getting approved for financing, the house passing a checkup, the property appraising for at least the purchase price, and occasionally the buyer selling their existing residence. These contingencies are designed to protect the buyer, allowing them to terminate the agreement without incurring any penalties if the owner doesn’t meet certain contingencies within the allotted time. The sale can move on to the next steps leading up to closure if the seller meets all contingencies.

Some of the common contingencies are:

- Appraisal contingency
- Financing contingency (also called a mortgage contingency)
- Home inspection contingency
- Home sale contingency
- Title contingency

The Process Behind Real Estate Contingent Offer

A bid on a piece of real estate contingent with conditions attached for the sale to go through is known as a contingent offer. These provisions, also known as contingencies, safeguard the buyer by permitting them to withdraw from the agreement without forfeiting their earnest money deposit if the seller doesn’t meet them.

- Offer Submission: The procedure starts when the buyer makes an offer on the house and includes a range of contingencies. Common contingencies include a buyer’s present house sale, an inspection, an appraisal, and financing. After reviewing the offer, the seller can negotiate or reject the conditions.
- Seller’s response: Seller examines the offer. They can reject the offer, accept it as is, or suggest improvements. The property is listed on the market as “contingent” if the seller agrees with the contingent offer.
- Ensuring Contingencies: Both parties involved will ensure they take action to meet the contingencies. They will, for instance, schedule a home inspection, apply for a mortgage (financing contingency), and ensure the property valuation is at or above its purchase price.
- Contingency Check: Once the seller meets each contingency, the buyer will remove it from the contract. This is usually done by giving a written notice to the seller. For instance, the buyer will eliminate the financing limitation after obtaining a mortgage. This process ensures that the buyer is fully informed about the status of the sale.
- Closing: The transaction proceeds to the closing phase if all contingencies are satisfied and eliminated. As the sale is near completion, the property status could change from “contingent” to “pending.”
- Failure: If the seller does not meet the contingency, the buyer normally has the right to withdraw from the contract without paying penalties, and their earnest money deposit is usually refunded. This empowers the buyer to make decisions that are in their best interest. The seller may then choose to accept backup offers or relist the property.

Usual Cases of Contingencies in Real Estate

Here are some of the common contingencies required in a real estate transaction:

Appraisal Contingency

The property sale is subject to an appraisal contingency, which states that the property must appraise for at least the amount the buyer has agreed to pay. This feature is significant because lenders generally will not authorise a loan for an amount greater than the property’s assessed value. An appraisal contingency guarantees the buyer has a plan of escape if the property is not valued as anticipated, protecting them from overpaying for the purchase.

Finance Contingency

A financing contingency is a real estate purchase agreement provision that permits the buyer to back out of the agreement without incurring any penalties if they cannot obtain a mortgage loan. If a bank turns down the buyer’s loan application or the loan terms are unacceptable, this contingency shields them from buying a property they cannot afford.

Home Inspection Contingency

A real estate contract feature known as a “home inspection contingency” permits the buyer to hire a professional inspector to examine the property before completing the transaction. Suppose the inspector finds any major problems or repairs during the inspection. In that case, the buyer may negotiate repairs, ask for a price reduction, or cancel the contract without losing their earnest money deposit. This contingency protects them by guaranteeing that the buyer is fully informed about the property’s condition before committing to the purchase.

Home Sale Contingency

A home sale contingency is a provision in a real estate contract that requires the buyer to sell their existing house before they can buy a new one. If the buyer cannot sell their current residence within the allotted time, they may withdraw from the agreement without losing their earnest money deposit. This contingency shields buyers from the financial danger of holding two properties simultaneously.

Title Contingency

A real estate contract might include a title contingency clause that guarantees the property has a clear and marketable title before the sale can go through. It safeguards the buyer by enabling them to back out of the agreement if they find title problems like liens, disagreements, or unresolved legal claims. This contingency guarantees there won’t be any liens or legal issues when the buyer takes possession of the property.

Various Contingent Statues in Real Estate Deals

Different types of contingent statuses in real estate describe different stages or conditions under which a property is under contract.

Contingent: Continue To Show (CCS)

This condition means the seller has accepted the buyers’ offer. The buyer, meanwhile, tries to fulfil the contingencies. During this period, others can view and make an offer on the same property.

With Kick-Out

The seller is still able to take backup offers and market the property. The original bidder has a deadline to remove their stipulations or accept the new offer if a higher one is received.

No-Show

When a buyer or potential tenant cancels a scheduled showing or appointment for a property because of a change of plan, miscommunication or lack of interest, it’s called a “no show” in the real estate industry.

With No Kick-Out

It refers to a specific kind of contingency clause in real estate contracts. It states that if an offer depends on a contingency, the seller cannot accept backup offers or market the property. Put differently, once a buyer has a contract on the property, the seller cannot consider other bids or “kick out” the original buyer if the contract has stipulations.

Active Short Sale Contingent

The seller accepts an offer and actively advertises the property as a short sale, but the sale still requires lender approval and may have additional requirements. The agent lists this property for sale until the parties meet the requirements.

Contingent Probate

When the seller accepts an offer under contingent probate, the sale can only close after obtaining the necessary clearance from the probate court. This measure ensures that the seller can properly manage their real estate assets and that the sale complies with legal requirements. If the buyer rejects the current offer or the court denies the sale, other interested parties can still view the property.

What Happens If a Seller Does Not Meet The Contingency?

Failure to meet a contingency in a mortgage transaction can greatly affect the sale process. The buyer usually has the right to withdraw from the contract without losing their earnest money deposit unless a condition, like financing, house inspection, or appraisal, is met. For instance, the buyer may decide to end the contract if the home inspection reveals serious problems that the seller is unable or unwilling to address. Similarly, the buyer can back out of the deal if they cannot obtain financing or if the home appraises for less than what they paid, and the seller won’t agree to a lower price. Thanks to this safeguard, consumers might avoid being forced to purchase in an unpleasant situation.

Definition of Pending House Status

A pending home indicates that all conditions have been satisfied and the seller has accepted a buyer’s offer. Before the deal closes, just a few things are left to do, like transferring ownership and finishing the paperwork. The property is no longer open to further offers; the parties have almost finalised the purchase.

Comparison Between a Contingent and Pending Offer in Real Estate

Contingent and pending offer are the stages of listing and purchasing a property in a real estate transaction.

- Making a pending offer: People rarely use this terminology in real estate. However, if an agent lists a property as “pending,” it indicates that the parties have accepted the offer, all conditions have been satisfied, and the transaction is pending closure. In essence, a pending property is not available for purchase; you cannot place an offer on it.
- Making a real estate contingent offer: This scenario occurs when a buyer submits an offer on an item of real estate with requirements (contingencies) the seller needs to meet for the deal to close. Appraisal, home inspection, and finance are examples of common contingencies. The property is still up for sale until the owner deals with unanticipated events. The sale proceeds if the requirements are satisfied; the buyer may back out.

In a Nutshell

Buyers and sellers must navigate the real estate market to understand the meanings of contingent and pending offer in real estate. A contingent status gives purchasers flexibility and security by putting a property under contract, but the sale can only move forward once the seller meets certain requirements. On the contrary, a pending status denotes that the deal is nearing closure and that the owner has resolved all contingencies. While sellers may more successfully handle offers and convey the status of their property, purchasers can better manage their expectations and plan their next strategy by being aware of these concepts.

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Frequently Asked Questions (FAQs)

Is contingent the same as pending?

No. Contingent and Pending offers are different. Pending means that the seller has met all the conditions and the sale is almost complete, whereas contingent indicates that the sale is still subject to the terms of the contract but not quite there.

Which is closer to closing, pending or contingent?

Pending status is closer to closing a transaction. Pending implies that the parties have met all conditions and the deal is nearing completion.

What does pending close mean?

Pending close signifies that the sale of the property is still pending final documentation and closing even though it is under contract and all conditions have been satisfied.