Real Estate FAQ – What does a “Contingent” Contract Mean?

real estate contingency

 

You’ve decided to take the day to enjoy the sunshine and you find yourself on the way to one of Brevard County’s beaches. Enjoying the day and the area you decide to cut down one of the streets just off of Highway A1A, and it’s there that you see it. The perfect house that you have been dreaming of and even better, it’s for sale. It’s the whole package for you. It’s large enough to fit your growing family, it has perfect curbside appeal and checks every box off of your want list, right down to the white picket fence surrounding it. You don’t even hesitate. You reach out to your Carpenter|Kessel agent only to find that there is already an offer. But the property hasn’t sold yet, it’s referred to as Contingent. So how does this affect you possibly getting your chance to own this dream home? Let’s explain what a contingent offer is. A contingent offer is pretty normal in real estate. The final sale of the home is usually contingent based on criteria that has to be met before the home can be turned over to the new buyer. A potential reason a home could have a contingency (contract) on it is the would-be buyer has to sell their house before they will have the appropriate funds to purchase this new home. A contingent offer typically is good for anywhere from 30- 45 days, during which if the buyer is able to sell their original residence they are now bound by contract to buy the new house.

Here are a few other things that will affect the sale:

Inspection

  • Conceivably one of the most important contingencies of the sale of a home. A would-be buyer can ask for a home inspection to establish if the property has any defects that are not readily observable during the initial walk through and that the home is safe to move into. On the chance something is found wrong with the house that was unexpected or not readily observable when making the offer, a buyer can either back out of the sale if they wanted to, or  they can ask the current homeowner to fix the problem that was found. On a side note, it is VERY poor practice for the Buyer to ask for a repair or a credit for an item they knew was defective when making the offer.

Appraisal

  • With an appraisal of a house, it is standard that a third party appraises the home that is for sale to determine its market value. But if the appraised home is valued less than which the home is on the market for, a would-be buyer can revoke their offer in order to not overpay for the house. However, in the event, a buyer is determined to buy the house no matter what, the contingency can be waived. It should be noted though that typically this contingency goes hand and hand with the Mortgage or Finance contingency. The buyer is will not lend the buyer the funds for the purchase if the home does not appraise.

Mortgage

  • So, we’re going to imagine both the appraisal and the inspection of the house have gone properly. But it seems that the would-be buyer is having trouble with securing a lender to cover their mortgage loan. Then a mortgage contingency gives a buyer a specific timeframe to get a loan should they not be able to do so, or go past the time allotted, they have the right to walk away from a sale without loosing their earnest money deposit. But this contingency can be circumvented if the buyer is aware from the beginning of how much they qualify for before a home search has even begun.

When a property is in a “Continent” status,  a seller can hear other offers and accept them on a Back-up basis. However the buyer in 1st position who has a contingent offer will always have first say on the house should all go accordingly. The seller may even accept another offer on the house, this is called a backup buyer, and they would have to wait during the contingency period of time before being able to see if they’ll have an opportunity to go forward with an offer. We’re right back to the question of, ‘What does this mean to you, an outside buyer who was going about their way to enjoy their day in the sun? Well, you can always make an offer, because you never know what may happen. Buying a house can be precarious sometimes and the unknown sometimes happens. Such is the case with a contingent buyer walking away from an offer for any of the reasons we talked about above. A seller may then accept your offer on a back up basis and before you even realize you’re organizing a move into your dream home.

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2016-10-15T00:19:52+00:00 September 16th, 2016|

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