Contingent: What It Means In Real Estate

If you’re a home buyer, it’s a good idea to protect yourself against the unexpected – at least as much as possible. That’s why many home sales are made “contingent” on one or multiple events coming to pass. This allows a prospective buyer to not be stuck buying a home if something goes wrong.

Fully understanding what “contingent” means and how it impacts the home buying process can help potential buyers sleep better at night since contingencies provide an “out” for them – without penalty – if the stars don’t align for them to reach the closing table.

What Does Contingent Mean In Real Estate?

Contingent literally means “depending on certain circumstances.” When a house is listed as contingent, the buyer has made an offer and had their offer accepted by the seller. However, before the deal is complete, some conditions must be met. If they’re not met, the buyer is free to walk away and the house would typically go back on the market.

For instance, if you and the seller have agreed to press forward with a transaction provided the home inspection comes back clean, you’ve entered a contingent real estate contract. In this case, the sale of the house is contingent on the inspection not revealing major issues with the home as outlined in the purchase agreement between the buyer and seller.

If the home inspection uncovers an issue or multiple issues that would cause the sale to fall through, the buyer and seller can renegotiate the contract. Or, the buyer can bow out of the deal and reclaim their earnest money – a term we’ll discuss in a bit.

How Does A Contingent Offer Work?

With a contingent offer, you have stated that a certain condition must be met before the sale moves forward. If it doesn’t, the contract is void, and the seller can move on to a backup offer received while the sale was contingent. Contingencies are often used to protect the buyer from problematic home listings or unforeseen issues within the real estate transaction.

Keep in mind that making a contingent offer on a property is easier if you’ve already found a lender you want to work with. This can ease sellers’ fears of the sale falling through due to lack of financing or the buyer not qualifying for a mortgage. If possible, start the approval process as soon as you’re ready to buy a home. This way, you’ll increase your chances of having the seller accept your offer, contingencies and all.

Contingent Offer Example

Returning to our example above, let’s say that we make the offer contingent on the home inspection showing a roof life of 15 remaining years. If the inspector deems the roof only has 7 years left, that’s unacceptable and an active contingency status will be placed on the home. The home seller might then decide to fix the roof or adjust the price, or the potential buyers might decide to exit the contract, which they can do without penalty since they had the contingency in place.

Common Contingencies In Real Estate

As a buyer, you can choose the contingencies you include in your offer – and whether you include any at all. You should base this decision on your circumstances, the real estate market and your real estate agent’s recommendations.

Wondering about the contingencies you might consider? Here are several common ones.

Home Inspection Contingency

Again, a home inspection contingency allows a buyer to back out of a purchase contract if their home inspection reveals certain issues with the property.

As part of the contingency, a home inspector assesses the condition of the home, checking out all aspects of the property that might not be noticeable or that the prospective buyer might not think about, such as landscape grading and exterior flashing. If the inspection reveals serious flaws in the home’s condition and those flaws have been spelled out in the contract, the buyer may back out or request that the seller repair the issues or lower the purchase price.

Mortgage Contingency

A mortgage contingency gives the buyer a specific period of time to secure home financing. And, thankfully, this is a financing contingency that can be mostly handled early on in the process. First, you want to ensure you’ve been preapproved – not just prequalified – for a mortgage.

The preapproval puts you far closer to actual mortgage approval because unlike a prequalification, which involves self-reporting your financial information, a preapproval requires providing a lender with paperwork that allows them to verify your finances are in order. Preapproval doesn’t guarantee you’ll ultimately receive final mortgage approval, though. This will come later on in the process once the lender has taken an even deeper dive into your finances.

Appraisal Contingency

The appraisal contingency comes into play most often when you’re taking out a mortgage.

Lenders require an appraisal, which is a third-party assessment of what the home is worth. Even if you and the seller agree on a sales price, your lender can’t offer you a mortgage for more money than the home is appraised for. In a rapidly changing real estate market, a house appraising for less than the sales price can be an issue, but that doesn’t mean you’re out of luck.

If you can renegotiate the purchase price or you have the cash to make a larger down payment so you won’t need a loan for more money than the house is worth, you may be able to continue sailing toward a purchase.

Title Contingency

A title contingency means the buyer’s offer is contingent upon the home having a “clean title” that’s free of any liens or encumbrances.

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 you’re able to clean up, it’s wise to get title insurance to protect yourself against any future claims.

Home Sale Contingency

With a home sale contingency, the sale of the home you’re looking to buy will only go through if your current home sells first. While this contingency can protect you, it’s common for sellers to reject this in a seller’s market where the seller knows there’s a good chance they’ll get an offer that doesn’t come with this restriction.

That said, it’s possible to carry on with the purchase of the new house before you sell your current house and have the cash from that sale in hand. Your lender may be able to help you with a bridge loan or suggest other financial strategies. Rocket Mortgage^® doesn’t offer bridge loans.

Another option is requesting a later-than-normal closing date, which gives you more time to sell your house. Some sellers might not go for this if they want to close the sale quickly, but it might be attractive to other sellers shopping for a new home themselves or wanting to finish the school year in their current home.

Why Sellers May Not Want A Contingent Offer

While a contingency can reduce the risk for a buyer, the seller always prefers that the offer comes with no buyer contingencies. The absence of contingencies gives the seller a better chance of actually selling their home. Because of this, adding contingencies puts home buyers at a disadvantage – especially in a “hot” market where there’s no shortage of buyers.

For instance, if your offer has a contingency stating that your current house must sell before you can complete a home purchase, the seller might not want to risk waiting around if another buyer’s offer isn’t contingent on their home selling. You’ll want to use the contingency clause judiciously to make sure your offer is as attractive as it can possibly be.

What Does A Contingency Mean When House Hunting?

Submitting a contingent offer may change your approach to house shopping. Here are some strategies that might be worth trying when you have a contingency or multiple contingencies in your offer.

Continue To Look At Homes 

Even though you might have your heart set on a specific house, your real estate agent may recommend you keep looking at houses and even make other offers while waiting for the outcome of your contingent offer on one house. This may be a particularly good idea in real estate markets with low housing inventory and a surplus of buyers.

It’s often best to avoid putting all your eggs in one basket, so to speak. That way, you’ll have multiple options if the seller flat-out rejects your offer or you never make it to closing due to a contingency not being met.

Prevent The Seller From Accepting New Offers

You may also wish to negotiate terms that limit sellers’ rights to accept new offers once they’ve accepted your offer. This might motivate the seller to resolve any issues that would keep the sale from going through once they’re under contract with you.

Make Your Offer Stand Out

As always, rely on your real estate agent to help you negotiate the best terms for your situation and make sure to start your mortgage application as soon as you’re ready to begin looking at properties. By getting an initial approval, you’ll be equipped to make an offer that’s at least competitive.

Be Aware Of Kick-Out Clauses

Note that sellers might request a kick-out clause while they wait for the contingencies in your offer to be met. In a contingency with a kick-out, sellers can continue to consider offers, and they’ll generally be looking at ones with fewer contingencies than the first offer.

While contingencies can protect your interests as the buyer, the possibility of a kick-out clause request from the seller is another reason to make your offer with as few contingencies as possible. But the good news is that the sellers can’t kick you out just because they find a better offer; they must notify you and give you some time to remove the contingencies.

Also, in a buyer’s market, sellers may accept a contingency with a no-kick-out provision. This would prevent them from accepting new offers while the contingencies are being worked through.

How Does Including A Contingency Protect Buyers?

Purchasing a home can be risky. For example, there could be structural issues with a property, or the ownership of a property could be disputed. It’s always possible, too, that some issues won’t come to light until after you’re locked into a contract. You may want to include contingencies in your offer so that if you find something wrong with a property, the contingency will void the sale contract and you’ll be protected from financial loss.

What Happens When A Contract Is Voided?

Voiding a contract means the seller can relist their home and the buyer will get their earnest money back. Earnest money is a “good faith deposit” – typically of at least a couple thousand dollars – that a buyer commits to making as part of their offer or purchase agreement with the seller. Putting earnest money down gives a buyer assurance that they’re entitled to purchase the home but not obligated to move forward with the purchase if doing so isn’t in their best interest upon further consideration.

How Often Do Contingent Offers Fall Through?

Whether you’re a buyer or a seller, you’ll want to know whether a contingent offer will raise the likelihood of the deal falling through. The answer is that typically it doesn’t add much risk of a failed deal. According to a June 2024 survey conducted by the National Association of REALTORS^®, only 5% of all purchase contracts fell through in the previous 3 months.

Whether you make a contingent offer on a house or not, it’s overwhelmingly likely that you’ll go on to make a purchase on a house once it’s under contract. Among the most common reasons for purchase contracts falling through are home inspection-related issues and job losses on the buyers’ end.

FAQs: Contingencies In Real Estate

To be prepared to make a great offer on a home, you’ll need to understand how contingencies work. Here are answers to a few common questions about contingencies in real estate.

Do I have to make an offer with contingencies in place?

You’re not required to include contingencies with any offer, but choosing to include one or more can be the right move in some cases. Many buyers include a combination of different contingencies in their offer, but it all depends on the individual buyer’s needs and concerns.

Is it ever a good idea to waive contingencies?

Waiving certain contingencies can be a good idea if you’re trying to get an offer accepted in a seller’s market, where there are more buyers than homes available. By waiving contingencies, you may make your offer stand out from other offers the seller receives.

With this, you’ll have an increased likelihood of the seller accepting your offer. Still, it’s important to carefully consider the implications of waiving any contingencies before doing so.

What happens if my contingent offer falls through?

If a seller fails to satisfy the contingencies of your offer, the sale won’t continue on under the agreed-upon terms. Your earnest money deposit will be refunded, or you can continue the home search or renegotiate with the seller in hopes of reaching a new deal.

Should I look at a house that’s contingent?

It won’t hurt anything to look at a house listed as contingent. Nor will it hurt to submit a backup offer, if possible. That said, you should anticipate the original contract going through to close. In the event that the sale falls through, having already looked at the house can put you in a better position to get it.

The Bottom Line: Contingencies Can Protect Home Buyers

When you make an offer on a house, you can put safeguards in place for your own protection. These safeguards – formally known as contingencies – let you move through the home buying process without fear of losing money or making a commitment you can’t break no matter the circumstances. However, contingencies come with the potential pitfall of a seller not accepting an offer with them.

Before you make an offer on a house, be sure to have your financing squared away. This will make you much more attractive to a seller. Start an application for initial mortgage approval today to make your strongest offer.