Purchasing a home is a wonderful yet stressful experience. It requires much time, effort, and study. Moreover, you’ll also encounter some unfamiliar real estate jargon.
Active contingent is one of those terms you will encounter when buying a house. You will also notice pending status, kick-out clause, multiple listing services, and more. You may have encountered these terms while looking up real estate properties.
Not knowing what all the terms mean leads to irreversible investment mistakes. Thus, it is important to do your research ahead of time.
What does contingent mean in real estate? What is the distinction between active contingent and pending? Below, we’ll discuss what these terms imply in real estate and more.
What Does Contingent Mean In Real Estate?
Contingent in real estate indicates that the sale of a property has been agreed to. But there are one or more conditions attached to it. Consider a contingency as a clause in the purchase contract.
A contingency is a set of conditions that must be satisfied before the transaction can be finalized in a purchase agreement. Most of the contract’s contingencies are imposed by the buyer, although they can also come from the seller.
What Does Active Contingent Mean?
Active contingent means that an offer has been made, and the seller has agreed to accept it. However, several conditions must be met before the sale can be completed. The homeowner or seller must resolve those issues.
Both buyers and the sellers benefit from contingencies, but the buyers benefit the most. It allows the buyer to walk away from the contract with no penalties. Additionally, the buyer may receive a refund of their partial payment. Thus, saving them money, time, and energy.
Types Of Contingencies
The type of contingencies you may encounter in the sales contract include: home inspection contingencies, mortgage approval contingencies, appraisal contingencies, and home sale contingencies. These provisions provide a date or timeline for meeting the criteria in most cases. However, it may differ from state to state.
Home inspection contingencies– When the contingency involves a home inspection, the house must pass the inspection for the transaction to move forward. It is often done when there is an issue with the house, such as the roofing, plumbing, electrical systems, or structure.
Mortgage approval contingencies– If the seller cannot acquire secure financing, a mortgage approval contingency protects both the buyer and the seller. It also sets a date when an official mortgage approval has to be in place, typically seveb days before the deadline.
Appraisal contingencies– This condition allows buyers to get out of the contract if a house is appraised cheaper than the purchase price. A third-party appraiser typically does the assessment and confirms that the investment makes sense.
Home sale contingencies- The deal is contingent upon the successful transaction of the buyer’s present home within a specified timeframe. If the buyer’s house doesn’t sell by the designated date, the agreement can either be prolonged or canceled by the seller. Home sale contingencies can be risky to sellers because there is no certainty that the home will sell.
Know The Local Scenario
It’s critical to discuss the impact of a home’s status on your ability to make an offer with your agent. While the details regarding what each category signifies for you as a prospective buyer vary from state to state.
The main statuses you may encounter on postings are:
Active – The property is presently for sale and placed on the Multiple Listing Service (MLS).
Contingent – The seller has agreed on a conditional offer but has not yet eliminated the contingencies.
Pending – The home sale is coming toward finalization.
Sold – The deal is formally concluded and registered by the county.
Contingent status may have a distinct connotation depending on the location of the house you’re purchasing. Every MLS has its own set of rules and regulations. If a home is contingent, its sale depends on the buyer receiving the cash from the sale of their own home.
The buyer’s offer includes a certain period for the seller to advertise and sell their house. If those requirements aren’t satisfied, the house will become active again. In the meantime, any other bidder can step forward and make an offer. The initial buyer is still first in line, but a new buyer has the opportunity to overtake them.
Active Contingent Status Vs. Pending Status
The listing transitions from contingent to pending status when the seller accepts an offer and all contingencies are met. Active contingent listings remain active on real estate websites, which means that other buyers may still submit a proposal.
Once all contingencies have been eliminated and completed, the property will display a pending status. Because pending deals are not active listings, no other buyer can make an offer on the house. The house has a “pending status” until all legal processes are finished.
What Is A Kick-Out Clause?
If the buyer cannot sell their house and has another offer, the seller has another option. The seller can contact the initial buyer and allow them a specific amount of time to either remove the contingency or satisfy its conditions.
It is referred to as a “kick-out clause,” also known as a right of first refusal in some property markets.
It may only take a few days for the buyer to move through with their acquisition, even if they have not yet sold their present house. It places the present buyer in a tough situation if they lack the financial means to purchase the home without selling their current property. Thus, the seller may accept a second buyer’s offer if the original buyer cannot complete the transaction.
If you’re interested in a property with a contingent listing, you can submit an offer through your real estate agent. If the seller finds your offer appealing, they may consider proceeding with you instead.
Can A Prospective Buyer Make An Offer On A House That Is Active Contingent?
In a nutshell, buyers can make an offer at any point during the house purchasing process. It is not, however, that simple.
Sellers who have a house with active contingent status can accept a backup offer from a buyer. Your offer will take precedence over the original one if the initial agreement falls through.
The duration of the active contingent period differs, often a few weeks. However, it may take longer.
An active contingent status indicates that the closure of a property is not far off. The likelihood of the home being placed back on the market is quite low.
However, that doesn’t mean that it is impossible for the house to return to the market. That is why it makes sense to make an offer on a contingent house.
Can A Contingent Offer Fall Through?
There are several reasons why a contingent sale may fail. This situation is possible if the buyer cannot obtain the home loan they expect. In most cases, buyers receive a letter from their mortgage lender stating they have been preapproved for the financing needed to purchase a property.
However, the preapproval letter is meaningless if the buyer is not truthful and accurate with the lender regarding the information provided. Pre approval does not ensure that buyers will be accepted for the mortgage they need. Hence, some house deals fall through for this reason.
Even if the borrower provides the lender with the appropriate information, sometimes issues might occur. If their financial status has worsened after receiving pre approval, such as a decrease in their credit score, their mortgage application may be denied.
Credit score may possibly decrease if the borrower has requested more loans or has fallen behind on a bill payment. There are several factors that can impair your credit rating, which might result in a mortgage application being rejected.
A borrower may need to shift to a bad credit mortgage at this stage. However, a seller may be unwilling to extend their financing contingency period.
On the other hand, interest rate changes might sometimes cause issues for borrowers. Low interest rates make it easier to get a mortgage. However, if rates rise, it may increase the number of contingencies not satisfied.
What If Your Heart Is Set On An Active Contingent Property?
If you have your heart set on any of the active contingent properties, the best suggestion is to check back frequently to see if anything has changed. You’re in luck if you notice that the contingency period has expired and the property is no longer under contract. Your opportunity to submit an offer is now open.
If you’re interested in a house that’s either active contingent or has a pending status, you should contact a Realtor to learn more about your options.
Get Professional Advice
Having read this article, you can now answer the question “What does contingent means in real estate?” Whether buying or selling a house, understanding real estate terms like it is critical. Thus, getting a real estate agent well-versed in the local market is vital to get the soundest advice. This way, you can make the best decision with your real estate investment.
Nothing beats working with a qualified, certified real estate agent when selling or buying a house. Have no idea where to look for one? You’ve found it! Whatever your real estate needs are, HOMES by ARDOR is here to help you.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.