If you're a first-time homebuyer, you may be confused with the term "contingent." Contingent, which means "depending on certain circumstances," allows buyers to back out if something goes wrong during a real estate transaction.
In this article, we'll go over the details of what "contingent" means and how it can impact the process of purchasing a property.
What Is Contingent in Real Estate?
In the realm of real estate transactions, the term "contingent" refers to a condition or a set of conditions that must be met for a sale to proceed. Essentially, a contingent offer allows a buyer to make an offer on a property, but the finalization of the sale is contingent upon certain specified conditions being fulfilled. These conditions can vary widely and are negotiated between the buyer and the seller.
How Does a Contingent Offer Work?
When a buyer makes a contingent offer on a property, they are essentially stating that they are committed to purchasing the home under certain circumstances. Common contingencies include securing financing, a satisfactory home inspection, and the sale of the buyer's current home. If any of these conditions are not met, the buyer may have the option to withdraw from the deal without any financial repercussions.
For example, if a buyer's offer is contingent on obtaining a mortgage, they must secure financing within a specified timeframe. If they are unable to do so, the contract may be voided, and the earnest money deposited by the buyer could be returned. Similarly, if a home inspection reveals significant issues, the buyer may have the right to renegotiate the terms or withdraw from the sale.
Common Types of Contingent Offers in Real Estate
Financing Contingency
This is one of the most common contingencies. It allows the buyer a specified period to secure a mortgage. If financing cannot be obtained within the timeframe, the buyer can exit the deal. Thankfully, buyers can now get preapproved for mortgage, which puts them closer to actually getting the mortgage for the purchase.
Home Inspection Contingency
Buyers often include a contingency based on a satisfactory home inspection. This contingency allows buyers to hire a home inspector to assess the condition of a property and find issues that may not be visible to the eye.
If the inspection reveals serious flaws, the buyer can either back out of the deal or negotiate with the seller over who will pay for the necessary repairs.
Sale Contingency
Buyers who need to sell their current home before purchasing a new one may include a sale contingency. This allows them time to find a buyer for their existing property.
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