Navigating the world of real estate can feel like a journey into the unknown if you’re unfamiliar with some of the industry terms. You may feel lost in the terminology if you’re not a real estate expert.

One term you’ll frequently come across is “contingent.” If you’ve found yourself wondering what this means in the context of real estate, you’re not alone!

In this blog, we’ll explore what contingent means, how a contingent offer works, and some common contingencies.

What Does Contingent Mean in Real Estate?

In real estate, “contingent” refers to a condition or specific event that must be met or satisfied for a real estate contract to move forward or be considered binding. In other words, an offer has been made and accepted, but before the deal is finalized, some additional criteria must be met.

How Does a Contingent Offer Work?

A contingent offer allows a potential buyer to make a purchase offer on a property while specifying certain conditions to be met for the sale to proceed. If the conditions are not met, the contract is void, and the seller can move forward with any backup offers received while the sale was contingent.

Let’s explore the typical steps in a contingent offer:

1. Offer Submission

If the buyer decides to purchase the home, they will submit an offer to the seller. In the offer submission, they'll specify the proposed purchase price, the desired closing date, and any other terms and conditions, including any contingencies.

2. Inclusion of Contingencies

Many types of contingency clauses can be added to a real estate transaction. There can be contingencies around the home inspection results, financing requirements, the sale of an existing home, or the appraised value.

3. Acceptance or Negotiation

The seller can either accept the contingent offer, reject it, or negotiate the terms. If the offer is accepted, the property is considered “under contract” but still subject to the contingencies.

4. Contingency Period

A contingency period is the number of days a buyer has to remove that specific contingency. This period can be used to conduct inspections, obtain loan approval, or sell their current home. If the buyer doesn’t remove the contingency by the end of the contingency period, they risk the seller canceling the purchase agreement.

5. Removal of Contingencies

When a buyer includes any contingency in their offer, they must remove it before the closing date. For the seller, having the buyer remove their contingencies is a significant checkpoint to cross. Contingency removal means the buyer becomes more committed as they risk losing their earnest money deposit if they want to back out after removing their contingencies. The sale has become more certain, and the transaction can proceed.

6. Possible Renegotiation

If any issues arise during the contingency period, such as significant repair needs or appraisal discrepancies, the buyer and seller may need to renegotiate the terms to proceed. The buyer can also walk away from the agreement but should check the contract to determine if they risk forfeiting their earnest money deposit.

7. Closing

If all contingencies are removed or waived, the sale moves to the closing phase, where all the legal documents are signed, and ownership of the property is transferred from the seller to the buyer.

Oak Floor Plan, Duplex Collection, Seton Community, Calgary, Alberta

Common Contingencies in Real Estate

While contingencies in a real estate contract can vary based on the market, location, and specific needs of either the buyer or seller, some contingencies are more prevalent and frequently appear in many transactions:

1. Home Inspection Contingency

As one of the most common contingencies, a home inspection contingency allows the buyer to have the property inspected by a professional to identify any issues or defects. If significant problems are found, the buyer may negotiate with the seller for repairs, a price reduction, or terminate the contract.

2. Financing or Mortgage Contingency

A mortgage contingency gives the buyer a specific time period to secure financing. To help expedite the process, you’ll want to be preapproved for a mortgage, not just pre-qualified. A preapproval navigates most of the necessary paperwork upfront to ensure your finances are in order.

For more tips to help pave the way to your final home loan approval, check out our blog on the Do’s and Don’ts of Home Financing.

3. Appraisal Contingency

Lenders will require an appraisal, which is a third-party assessment of what the home is worth. In an ever-changing market, home prices may not necessarily reflect the appraised value of a home. Sellers might be asking for a price you’re willing to pay, but the lender can’t offer you a mortgage larger than the home's appraised value.

The appraisal contingency stipulates that the property must appraise for at least the purchase price. If the appraisal comes in lower, the buyer may negotiate with the seller, request a price reduction, or walk away from the contract.

4. Sale of Buyer’s Home Contingency

If the buyer needs to sell their current home to finance the purchase of the new one, this contingency allows them time to do so. If they can’t sell their home within the specified timeframe, they can withdraw from the transaction. While this contingency protects the buyer, it’s common for sellers to reject this condition in a seller’s market, as there may be other buyers who don’t have this type of restriction.

5. Title Contingency

A title contingency ensures the property’s title is free and clear of any liens, encumbrances, or disputes. If title issues arise, the buyer may request the seller to resolve them, or the buyer can terminate the contract.

What Happens if a Contingency isn’t Met?

When a contingent condition isn’t met, either party may consider the purchase contract null and void, or they can renegotiate. For example, suppose the buyer cannot secure financing within the required timeframe. In that case, the buyer or seller has the right to terminate the transaction, or they can renegotiate additional time for the buyer to explore other financing options.

It’s important to note that contingencies are tied to the earnest money, or “good faith deposit,” that a buyer puts down when entering a contract on a home. The buyer usually gets that deposit back if a contingency isn't met. If the buyer defaults on the real estate contract terms, the seller gets to keep the earnest money. By putting certain contingencies in the contract that allow for legal termination, the buyer protects their deposit and ensures it’ll be refunded.

What’s the Difference Between Contingent and Pending?

A property listed as contingent means the seller has accepted an offer, but they’ve chosen to keep the listing active in case the prospective buyer doesn’t meet certain contingencies. If a property is pending, the conditions on a contingent property have been met, and the sale is being processed.

Brooklyn Floor Plan, Urban Homes Collection, Easton Park Community, Austin, Texas

Understanding contingencies is essential for both buyers and sellers as they provide a safety net to protect their interests throughout the homebuying process. For more information on commonly used real estate terms, check out our Glossary of Real Estate Terminology to help guide you during your home search.

Check out the Brookfield Residential blog for design advice, homebuying insights, mortgage tips, and more. You can also explore where we build and connect with our sales team when you’re ready to learn more. We’ll be expecting you!