Real estate contingencies are high on the list of things that can be confusing for homebuyers. Let’s just put this out there: the more contingencies you waive, the more appealing your offer will be to a seller … and in a competitive market, that can make all the difference.
So…what does “contingent” mean when buying a home?
Say you’re checking out real estate listings and bam! you spot your dream home, but its status is listed as “contingent.” Does that mean it’s sold?
Well, not quite. It means an offer is accepted but you can still try. The accepted offer has a sale contingency attached and may fall through. Simply put, the buyer must sell their current home first … and that may not happen.
Even if the listing doesn’t specifically state that the seller is accepting back-up offers, you can submit one. Listings are considered active until the status changes to “pending” or “sold.”
Then what is a “contingency”?
Think of a real estate contingency as an escape hatch. It’s a condition that must be met for a home purchase to go through and for the contract to become binding. It’s a clause that lets the buyer walk away from their home offer without sacrificing earnest money. Sellers can also have contingencies, but buyer contingencies are what we’re exploring here.
Because contingencies provide a way out of buying a home, they decrease certainty for the seller. Their home isn’t quite sold when they accept a contingent offer … so sellers really don’t love contingencies.
Flyhomes says: When the goal is to superpower your homebuying, real estate contingencies are like Kryptonite … they weaken your offer. It’s not always realistic to remove all contingencies but removing the ones you can is the best way to get the home you want at the best price.
What are the most common types of contingencies?
Inspection (or Due Diligence) Contingency
Every buyer has the right to a timely (usually 5-7 days from offer acceptance) professional home inspection. An inspection can provide the information needed to negotiate repairs or a better price, or allow the buyer to cancel the contract if the cons outweigh the pros.
This is often considered one of the most important contingencies, because an inspection can expose major problems with the property.
Flyhomes says: If you’re in competition, waive it! But don’t neglect an inspection. With both our Cash Offer and Guaranteed Offer programs, Flyhomes provides FREE pre-inspections, so you’ll learn both what’s great about the property and what problems exist before you put in an offer.
What if you end up paying more than the home is worth? That’s the question that leads to an appraisal contingency.
Regardless of whether there’s a contingency, the home will be appraised before closing if you’re getting a mortgage loan. An appraiser will evaluate the property to come up with an amount that the home is worth based upon the property itself (size, features, age, condition, upgrades), “comps” (sale prices of comparable nearby homes), and their own professional opinion.
This contingency requires that the offer price be equal to or less than the home’s appraised value. The appraisal will validate that you’re not paying too much … and if you are, you can re-negotiate or walk away.
Flyhomes says: Waive it! Flyhomes Mortgage will do a pre-appraisal free of charge before you offer. You and your Client Advisor will already have a conservative estimate of the home’s value, so you can be confident that your offer makes sense.
Financing (or Mortgage) Contingency
A financing contingency means that an offer depends upon the buyer being able to secure a mortgage loan (sometimes at a specified rate), usually within a set period and from a specific lender.
This contingency makes sure you won’t lose your earnest money (which is put down before closing) if you fail to qualify for a mortgage. In the traditional homebuying model, waiving it is risky because that earnest money is on the line.
Flyhomes says: Waive it! We do pre-underwriting to give you and the seller absolute confidence that you’ll get a loan. You’ll also get it at the best rate because you’ll have plenty of time to shop around for a lender between pre-underwriting and closing on your new home.
This is the one that makes a listing show up as “contingent.” It gives a buyer a certain amount of time to sell their home in order to finance the purchase of their new home. The seller waits for the buyer’s first property to sell for at least the asking price.
Not surprisingly, sellers dislike this contingency because it comes with a big question mark.
If the seller receives another offer in the meantime, they can ask the buyer with the contingency to waive their contingency. If the buyer won’t or can’t do that, the seller is free to accept the second offer.
Flyhomes says: Waive it! Trying to sell a home you’re living in is stressful and inconvenient, so we created Trade Up to allow you to buy first, sell later. With Trade Up, we increase your purchasing power by unlocking the equity from your current home to use toward your new home. That said, if Trade Up isn’t right for you, a sale contingency may still be a way to move forward with your offer.
Home purchase and sale contracts already include a contingency that the seller is required to provide a title that is “marketable,” meaning clear of liens, debts, and mortgages. The title company researches the title and won’t provide title insurance if it isn’t clean.
An additional title contingency addendum gives the buyer a right to review the title report (which includes the home’s full ownership history, including easements shared with neighbors or accessible by public utilities).
This is usually done in cases where the responsibility for shared areas, such as a shared driveway, isn’t clear. It’s a way to clear up questions about these responsibilities.
Flyhomes says: Waive it! Except in rare cases, the protections already included in your contract are enough for peace of mind. The title is public record, so you can review it before making your offer and, if you’re comfortable with what you see, exclude this addendum as a contingency.
Ultimately, the decision whether or not to waive contingencies is up to you, but rest assured, our top-notch team is here to help you make the tough “to waive or not to waive” decisions and help you get into a new home as quickly and seamlessly as possible.