What does Contingent mean in Real Estate?
Buying a house can be confusing at times, especially if it is your first time to purchase one. You may encounter problems such as having a difficult time looking for a trustworthy agent, finding your dream house in an ideal location, and sometimes, encountering unfamiliar terms and words.
One example of this is the term “contingent”. Some of us may have heard the word once or twice, but do not really know what this term means. Others may even have no idea on how this word affects the world of real estate. Now what exactly is the word contingent referring to and how can it help in finding the perfect home for you?
In the world of real estate, “contingent” refers to a status indicating that the seller accepted a buyer’s offer in which contingencies are included. But what does “contingencies” mean? Contingencies are requirements that must be met in order for a sale or agreement to close. In the scenario that the buyer was not able to meet these specific requirements, they can then back out from the deal with their earnest money deposit in hand.
In a survey conducted by National Association of Realtors’ (NAR), 76% of offers included contingencies in their real estate deals. Here are the most common contingencies involved in real estate contracts.
- Inspection Contingency – Buyers often conduct a home inspection before finalizing a deal. This includes air conditioning units, plumbing and electrical systems, and other structural damages. It allows the buyer to bring in professionals to inspect various parts of the house to provide feedback regarding safety and functionality. Buyers can now use these reports to negotiate for a better deal that favors them.
- Financing Contingency – It is also known as mortgage contingency. Financing contingency states that the buyer can back out from the deal if they cannot go through with their loan. Mortgage companies often have their own set of requirements to be met, and they have the right to deny you the loan if they found out that some of their set requirements were not satisfied, thus it can be said that financial contingencies provide safety in your real estate deals.
- Home sale Contingency – Home sale contingency provides the buyer a specified amount of time to sell their current home before proceeding to buy a new one. Unfortunately, this contingency is not used most of the time because many sellers are being left hanging. It is like asking the seller to pull out their property from the market without the assurance of your ability to buy their home.
- Appraisal Contingency – Most loans are subject to appraisal, this means that once an appraiser determines the fair market value, the mortgage company will agree to issue you a loan up to that specific amount. But, in most cases, the appraised value of a home is much lower than the price you agreed with the seller. This is where appraisal contingency comes in. It gives the buyer an option to back out from the deal if the appraised value of the home is different from the seller’s price.