House hunting contingencies | Contingent offers can fail | Offers on contingent houses | Make an offer? | Contingencies in contracts | Home inspection contingency | Financing contingency | Appraisal contingency | Title contingency | Selling current home contingency | Attorney review contingency | Frequently asked questions
A contingency is a "condition that must be met before a contract is legally binding," according to the Federal Trade Commission.
When you discover a house marked as contingent during a house-hunting search, the word means something more specific: an offer has been made on the house, but an issue — the contingency — needs to be resolved before the deal closes.
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You'll have to navigate various kinds of real estate contingencies during your home-buying process. More than three out of every four buyers face them, according to the May 2020 Realtors Confidence Index Survey.
Contingencies come in many forms. Each has a different potential impact on you, depending on whether you’re in the initial stages of your home search, or you’re in the thick of making an offer.
What do real estate contingencies mean when you're house hunting?
Seeing a property listed as "contingent" may mean another party has already made an offer on the home, but it doesn't mean you’re out of luck as a potential bidder.
The parties are waiting to learn whether contingencies in the home-purchase contract will be met, and those contingencies have deadlines. Real estate contingencies operate on a range of timelines. Some need just 24 hours. Others offer several weeks to meet a condition. Timelines can vary by state and the parties involved.
Within those time frames, offers with contingencies can — and sometimes do — fall through.
How often do contingent offers fall through?
Six percent of all home-purchase contracts were terminated in November 2020, according to that month's Realtors Confidence Index Survey. Those contracts most often fell through for the following reasons:
Appraisal Issues
A typical scenario: An independent appraiser found the value of the house to be lower than the agreed-upon cost of the house. The contingency let the buyer back out of the contract.
» READ: The Ultimate Home Appraisal Checklist
Financing Issues
A typical scenario: A buyer couldn’t secure a home mortgage loan in time and the deal fell through for financial reasons.
» READ: A Step-by-Step Guide to the Home Loan Process
Home Inspection Issues
A typical scenario: The home inspection revealed a deal-breaking issue for the buyer, like a leaky roof or a structural problem with the home's foundation.
» READ: 7 Must-Know Home Inspection Tips for Buyers
Title Issues
A typical scenario: There's a lien on the property. The new owner would potentially be responsible for unpaid debts.
» READ: 7 FAQs About Title Companies and What They Do at Closing
Other Contingency Issues
Three percent of terminated contracts failed due to other kinds of contingencies in the contract. Sometimes a buyer or seller will add a contingency unrelated to the above contingencies.
Can you make an offer on a contingent house before an offer falls through?
✅ Yes. However, you should know and understand the status of the contingencies to assess whether you want to proceed.
"You should review the Contingency Addendum or contract language in each contract to see what the terms and protections are for each party," says Dianne E. Keck, a partner in Home & Away Realty in Phoenix. "That is why it is critical to work with a licensee for the state in which you want to purchase or sell property."
Contingency statuses will vary by Multiple Listing Service (MLS), the private databases of real estate listings in different markets.
» READ: The Pros and Cons of a Multiple Listing Service in Real Estate
Below are four common contingency statuses you may come across:
Contingent - show
What the status means: The seller has accepted an offer with one or more contingencies, but continues to show the property to potential buyers. The seller will accept other offers. [1]
👉 Bottom line: You can make an offer, but you’ll be competing with others.
Contingent - No show
What the status means: The seller has accepted an offer with one or more contingencies and is no longer showing the property. However, the seller might accept other offers. Your agent may be able to help you learn more from the seller’s agent. [2]
👉 Bottom line: You can make an offer, but you’ll want to learn more about the specific situation from the seller to see if they’re really open to other offers.
Contingent with kick-out
What the status means: The seller has accepted an offer with contingencies. If they receive a better offer, the seller can give the first buyer the boot, even if the deadline is still running on the contingencies in the contract.
The kick-out clause usually kicks in after a period of time agreed to by both parties. [3]
👉 Bottom line: You can make an offer.
Contingent with no kick-out
What the status means: The seller has accepted an offer with contingencies but won’t boot the buyer for another offer unless the buyer doesn’t meet the contingencies set forth in the contract by the agreed-upon deadline. [4]
👉 Bottom line: You’re still in this, but only if the existing bidder fails to meet the contingencies in the home-purchase contract.
Is it smart to make an offer on a contingent house?
It depends on your specific situation and how strongly you feel about the house.
"Only a client can determine what is in their own best interests," says Phoenix-based agent Dianne Keck. "It's the job of a Realtor to explain the pros and cons of any decision, provide examples from their experience, and help the client consider what may come next in the process to anticipate consequences."
What do real estate contingencies mean when you're making an offer on a house?
When you're beyond the home-search phase and are a buyer making an offer, it's on you to meet whatever contingencies you've agreed to and are responsible for in the home-purchase contract.
You're in control. Mostly.
Sellers can have contingencies, too. Typically, though, you as a buyer will have to navigate the following common contingencies.
Home inspection contingency
What is it: A buyer pays for an independent inspection of the home, partly to hunt for deal-breaker issues with the property. Roofing, electrical, and plumbing issues are among the common reasons for failed home inspections.
A buyer who has a home inspection contingency and isn't satisfied with the state of the inspected home can walk away from the deal.
Sometimes, a buyer will instead negotiate for repairs or a reduced price on the home.
How common is a home inspection contingency? It's the most common real estate contingency, appearing in 59% of home-purchase contracts, according to the May 2020 Realtors Confidence Index Survey.
Home-inspection related contingenciesThese contingencies may be included in the overall home inspection contingency, or they may be highlighted on their own: 🏠 Cost-of-repair contingencyThis contingency caps the amount of money it could take to fix the issues found during the home inspection. If the estimated cost of the repairs exceeds this amount, the buyer can back out. 🏠 Termite certification contingencyIf a home inspection finds extensive termite damage, a buyer can walk away from the deal. |
Financing contingency
What is it: A buyer must be able to secure acceptable financing by a particular date in the home-buying process. Typically, that means qualifying for a home mortgage loan.
A buyer without secure financing can't buy the property and must drop out of the process.
How common is a financing contingency? It's the second-most common real estate contingency, appearing in 47% of home-purchase contracts, according to the May 2020 Realtors Confidence Index Survey.
Appraisal contingency
What is it: A home appraiser will evaluate the property and determine its fair-market value. If the appraised value comes in less than the purchase price, a buyer with an appraisal contingency may back out of the transaction. The buyer can also attempt to negotiate a lower price for the property.
The buyer typically pays for the appraisal.
How common is an appraisal contingency? It's the third-most common real estate contingency, appearing in 46% of home-purchase contracts, according to the May 2020 Realtors Confidence Index Survey.
Having clear title contingency
What is it: The clear title contingency allows the buyer to back out of the home purchase if the title to the house they’re buying isn't free and clear. For instance, a title might be found to have a lien against the property, or the boundaries of the property may be in dispute.
» READ: What to Know BEFORE Buying a House With a Lien Against It
How common is a clear title contingency? It's the fourth-most common real estate contingency, appearing in 12% of home-purchase contracts, according to the May 2020 Realtors Confidence Index Survey.
Selling current home contingency
What is it: A buyer may include a contingency that the sale only goes through if the buyer can sell their existing home.
A seller can also include a contingency that they'll only sell as long as they can buy a new property.
How common is a selling current home contingency? It's the fifth-most common real estate contingency, appearing in 6% of home-purchase contracts, according to the May 2020 Realtors Confidence Index Survey.
Attorney review contingency
What is it: The contingency allows a buyer to have an attorney review the home-purchase documents and note anything amiss in the paperwork.
How common is an attorney review contingency? Unknown. It's not included in the May 2020 Realtors Confidence Index Survey. However, real estate news source Inman reports that "one of the most common contingencies added to real estate contracts is a contingency for a 24-hour attorney review."
Frequently asked questions
Are contingencies common?
Yes. Seventy-six percent of home-purchase contracts contain contingencies from the buyer or seller, according to the May 2020 Realtors Confidence Index Survey.
Who’s most affected by contingencies?
Buyers. Typically, they have the most conditions to be met, or that they want met, when buying a home.
Among the most common are home inspection, financial, and appraisal contingencies.
What’s the most common contingency in a home purchase contract?
The home inspection contingency. It’s in 59% of contracts, according to the May 2020 Realtors Confidence Index Survey.
Should I avoid looking at or making an offer on a contingent home?
Not necessarily. Six percent of home contracts fell through in November 2020, according to that month's Realtors Confidence Index Survey.
Your odds aren’t great. But if you fall for a house and want to bid against the existing offer that contains contingencies, an opportunity reopens roughly one out of every 16 times.
