What does contingent mean in real estate?

This is a question that we get all the time from our home buyer and seller clients, especially those trying to buy a home, so I wanted to answer it for you. So the short answer is that it means that the seller has accepted an offer and property is moved to pending status - it is under contract to be sold to someone else.

A lot of times our buyers and sellers will be looking on the online portal sites like Zillow, Realtor.com, Trulia, things like that, and they'll see a house that they love and it says contingent or backup - something like that. So what does that mean?

There are two statuses that a realtor can put a property in when it goes under contract. The first is called pending sale. So what that means is exactly what it sounds like - there is a sale pending to someone else and another buyer unfortunately beat you to the property. There is a fully executed contract and the property is in the sale process.

The second contingency status is known as a backup status. And for all intents and purposes, that means the exact same thing. So I, for example, put all of my listings in backup status until I know that the buyer is moving forward from their inspection period and we have a solid deal. So when and we put it in backup status it will still show up on the sites like Zillow, Realtor.com. It'll show contingent or backup contracts accepted. Something like that. But the property really is under contract already, to someone else. So there's a distinction between that and an active property for sale.

So what does that mean for you as a buyer? Well, if you're seeing a property online and it says, Contingent or Under Contract, you're probably better off skipping it for now, and looking at other properties that are still listed as active. If you absolutely love the property and this is the perfect one for you, ask your realtor to call and see if that deal is solid.

Let's look at some common contingencies so you can understand what may fall through. The first is a home inspection contingency. A typical inspection period in South Florida is about 5-10 days depending on the house. It's possible the home has some issues that come up in the inspections with which the Buyer is not comfortable. During the inspection period the Buyer and Seller can renegotiate, the seller can give a credit, or fix any issues that arise. It is up to the Buyer and Seller to come to terms on anything that comes to light during an inspection. For any reason whatsoever and in the Buyer's sole discretion, the Buyer can back out of the contract if they're not happy with the inspections. They can even just get cold feet and change their mind with no risk.

The second common contingency is loan approval and mortgage contingency. The buyer has to get their formal loan approval from their mortgage lender within a certain number of days within the contract. Part of this loan approval is an appraisal contingency meaning the property has to be worth what an independent appraiser from the bank says it's worth. If it is not, the Buyer and Seller can renegotiate or the deal can again fall apart.

Deals can also fall through if buyers do not make their earnest money deposits on time or do other requirements of the contract on time. It is possible the deal has a home sale contingency of another property that may or may not already be under contract. This contingent listing would have to sell for first within a certain timeframe before this deal can go through. Every real estate transaction is different, but if you have a good real estate agent or realtor - especially if you work with someone on our team - we can monitor a property for you and the second that property falls out of contract, we'll be the first ones to know.

We will call the listing agent, verify that the property is active again, and we'll try to find out what happened for you, as the buyer, to make sure that it's not going to be an issue that's going to affect you as well. Then we'll schedule the showing and make sure you're the first person in there to get that home that you love.

If you really love the property, you can always put in a backup offer or contingent offer on the property while it is still under contract. This is an official backup contract that the Seller can sign that would automatically turn you into the primary buyer in the event that the first deal between the original buyer and seller does not go through. You are still protected by your inspection period, so you can continue to look for other homes in the meantime and back out if you find another better option while you wait. 

So I hope that answers that question. Really, if you're looking at properties online, try to make sure you're looking only at active properties, at least at first. It's going to save you a lot of time. On some of the sites like Zillow and Realtor.com there is a setting in the search that you can check that says, "Do not show properties that are under contract or backup." I recommend, to save some time, start by looking only at the active properties and then we can take it from there.

So I hope that clarifies that question. If you have any questions, give me a call, shoot me a text or send me an email.

Posted by Andy Mandel on
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