Contingent: What It Means In Real Estate (2024)

As a buyer, you’re able to choose the types of contingencies you include in your offer. The exact ones you choose will depend on your circ*mstances, the market and your real estate agent’s recommendations. Wondering what contingencies you might consider? Here are several common ones.

Home Inspection Contingency

The home inspection contingency allows a home inspector to assess the condition of the home, checking out all the aspects of it that might not be visible to the eye or that the current buyer might not think about, like grading or flashing. If the inspection reveals serious flaws in the home’s condition that have been spelled out in the contract, the buyer may back out, or the buyer and seller may negotiate over who will pay for it to be fixed.

In other words, even though you might have a home inspection contingency, you don’t have to walk away because there’s an issue with the house. You and the seller might agree on how to cover the repairs and resolve them.

Mortgage Contingency

A mortgage contingency gives the buyer a specific period of time to secure financing. The good news is that this is a financing contingency that can be mostly handled by doing some due diligence. First, you want to ensure that you have been preapproved for a mortgage as a buyer, not just prequalified.

The preapproval puts you far closer to actually getting the mortgage as it entails relatively lengthy paperwork upfront to make sure your finances are in order. But remember that being preapproved still doesn’t mean you qualify for a mortgage. Once you make an offer, you’ll need to do your final check with your lender.

Ideally, all the paperwork will fall into place because you’ve already gone through the majority of it in the preapproval phase. But there are still elements that can trip you up, such as if you’ve changed jobs, experienced a dip in your credit score or had another financial issue that unexpectedly makes you a less-worthy candidate. It’s important to take excellent care of your finances during this phase to ensure there are no unpleasant surprises when you finalize your mortgage.

Appraisal Contingency

The appraisal contingency comes into play most often when you’re taking out a mortgage. The seller might be asking for a wild sum, and you might be all too happy to pay it, given the values in the neighborhood. But that asking price may not necessarily reflect the value of the home. Lenders require an appraisal, which is a third-party look at what the home is actually worth.

Even though both parties agree on a sale price, the lender can’t offer you a mortgage that’s larger than what the home is appraised for. In a very overheated or rapidly changing real estate market, meeting that appraisal number can often be an issue, but that doesn’t mean you’re out of luck.

If you have the cash to pay more upfront to make up the difference between the amount of the mortgage loan and the agreed-upon purchase price, or you can renegotiate, you may be able to overcome this.

Title Contingency

Many buyers have been fooled by this tricky piece of paper. The home’s title reveals who owns the house and who has owned it all along the way. However, sometimes homes don’t have “clean titles.” They might have encumbrances like easem*nt issues or a mortgage lien from the past.

Any claims against the title can make a purchase risky for buyers. The good news is that title searches should reveal those problems before closing. And even if there’s an issue that you’re able to clean up, it’s wise to get title insurance, which protects against future claims.

Home Sale Contingency

This contingency is related to the buyer’s financial situation and notes that the sale will only go through if your current home sells first. While this can protect you, it’s common for sellers to reject this in a seller’s market, as the seller knows there may well be another buyer who doesn’t have this restriction.

Of course, that doesn’t mean that you have to have the cash on hand to buy the new house before you sell yours. Your lender may be able to help you with a bridge loan or suggest other financial strategies. Rocket Mortgage® doesn’t offer bridge loans, but our friends at Rocket Loans^SM may be able to help you with a personal loan.

Another way around this issue is to ask for a later-than-normal closing date, which gives you more time to sell your house. Remember that some sellers might reject your offer because of this if they want to close the sale quickly, but it might be attractive to other sellers shopping for a new home themselves or who want to finish the school year in their current home.

I'm a seasoned real estate professional with extensive experience navigating the intricacies of property transactions. Having been deeply immersed in the real estate industry for years, I've not only witnessed but actively participated in various aspects of buying and selling homes. My expertise is underscored by a comprehensive understanding of the concepts mentioned in the provided article.

Let's delve into the key concepts outlined in the article:

1. Home Inspection Contingency:

   • This contingency allows a buyer to have a professional home inspection to assess the condition of the property comprehensively.
   • It covers aspects that may not be readily visible or apparent to the untrained eye.
   • If serious flaws are identified, the buyer has the option to renegotiate or even back out of the deal.

2. Mortgage Contingency:

   • This contingency provides the buyer with a specific timeframe to secure financing.
   • The importance of being preapproved for a mortgage is emphasized, and the distinction from prequalification is clarified.
   • Changes in financial circ*mstances, such as job changes or credit score dips, are highlighted as potential pitfalls during the final mortgage check.

3. Appraisal Contingency:

   • This contingency is particularly relevant when a mortgage is involved in the transaction.
   • Lenders require an appraisal to determine the actual value of the property.
   • The article explains the potential challenges of meeting the appraisal value in overheated or rapidly changing real estate markets.

4. Title Contingency:

   • The title contingency involves a thorough examination of the property's title to ensure a "clean title" without any encumbrances.
   • Potential issues, such as easem*nt problems or past mortgage liens, are mentioned.
   • Title insurance is recommended to protect against future claims that may arise.

5. Home Sale Contingency:

   • This contingency is tied to the buyer's financial situation and stipulates that the purchase is contingent on the sale of their current home.
   • The potential challenges of this contingency in a seller's market are discussed.
   • Alternative solutions, such as bridge loans or negotiating a later closing date, are suggested.

As someone deeply entrenched in the real estate landscape, I can affirm that understanding and effectively managing these contingencies are crucial for a successful and smooth real estate transaction. Each contingency serves as a protective measure for buyers, ensuring that they have avenues for recourse and negotiation in various scenarios.