What Does 'Contingent' Mean in Real Estate?

If you've browsed real estate listing sites, you may have come across homes that are marked as 'contingent'... but what does that mean, and is a contingent home different from a home that's pending?

What does it mean in real estate when a home is contingent?

When it comes to homes on the market, there are actually several statuses that they enter during the sale process. These statuses are entered into the MLS (Multiple Listing Service) by the listing agent to reflect the stage of the home. Other agents (and websites such as Redfin, Zillow, or ZeroDown) are able to access this information through their own subscriptions to MLS feeds. 

Image of contingent home listing marked as contingent - no show
Example of a home that has entered the 'Contingent - No Show' status on ZeroDown's Status Feed

A contingent home is still considered an active listing, because the provisions relating to the contingencies have not yet been met, and so the contract could still fall through. Once all contingencies have been cleared, the house enters a 'pending' status and is no longer considered an active listing.

READ: What Does 'Pending' in Real Estate Mean?

Statuses such as 'Contingent-Show' or 'Contingent-No Show' indicate that the seller has accepted an offer but the offer is still waiting to clear contingencies before the contract can go pending.

In the case of a 'Contingent-Show' status, the listing agent is indicating that the seller is still willing to show the home to prospective buyers, in case the offer falls through. 'Contingent-No Show' naturally means then that the seller is not willing to show the home any further.

Okay, but what is a contingency in real estate, actually?

Contingencies are provisions built into a real estate contract that require certain conditions and/or events to happen within specific deadlines before the transaction can close. Some contingencies are deemed fulfilled ('removed' or 'cleared') automatically unless the seller/buyer does not say otherwise, while others require the buyer or seller to actively indicate in writing, usually via a form, that they are removing or clearing a contingency.

Contingencies are designed to protect sellers and buyers from unforeseen or unexpected events or discoveries during the course of the transaction. For the buyer, contingencies allow them to walk away from the transaction and recover their earnest money they deposited with escrow when they entered the contract. For the seller, they can provide protection/offset lost opportunity (especially if the buyer needs to sell their home before they can buy the new one).

Depending on the home, the buyer's confidence, and the real estate market, buyers may opt to waive certain contingencies in order to provide more certainty to the seller that their offer will successfully close. All things being equal, a seller is more likely to accept an offer with fewer contingencies because there is less of a chance for the sale to fall through.

What are some common real estate contingencies?

Inspection Contingency

To prevent buying a home that has hidden costs and problems not apparent during a showing and in the disclosures, buyers opt to include an inspection contingency, which will allow them to hire inspectors at their cost to assess the house. The resulting report(s) will give the buyer a better idea of the condition of the home, and allow them to renegotiate pricing, request repairs, or walk away based on the findings.

Appraisal Contingency

To ensure that the buyer (and lender) is paying a fair amount for the home, buyers insert an appraisal contingency, which allows the buyer to renegotiate for a lower price if the appraisal returns a value lower than the purchase price, request the lenders make an exception, make up the difference via their own funds, or walk away.

Financing Contingency

Buyers will often include a financing contingency to enable them to walk away without being on the hook for the home in case their mortgage financing falls through and they are unable to obtain a loan commitment letter.

Home Sale Contingency

Buyers who are in the process of moving from one home they own to a new one will often include a home sale contingency where they will be able to walk away from the sale if they are unable to successfully sell their current home by a particular time. This is designed to prevent them from having to pay two mortgages - one for the new home, and one for the old one before it sells, or to enable them to gain the liquidity they need from the sale of the first home in order to close on the second.

Sellers may counter with contingencies of their own, such as a Kick Out contingency, which will enable them to continue to market their home and accept offers, then give the existing buyer a period of time (usually 72 hours) to remove the home sale contingency, after which if they do not, they are "kicked out" and the seller can terminate the contract and enter into a new one.

Title Contingency

The title contingency gives the buyer (and their lender) the opportunity to obtain a title report to ensure that the home is free of any liens or other encumbrances, and that there is no conflicting ownership status over the home.

What does this mean for you, if your dream home is contingent?

The December 2020 Realtors® Confidence Index Survey found that only 6% of members' contracts ended up falling through. This means that while you should not get your hopes up, if you're serious about the home, you should still let your agent know.

A good agent will be able to find out if a contingent home is still accepting showings, and will make sure the listing agent knows that you are interested in the property. If the seller is taking backup offers, you'll also be able to put your offer in the mix. In the case that the the sale falls through because the buyer or seller did not clear contingencies, you will be in a position to have your offer considered.

READ NEXT: What Does 'Pending' Mean in Real Estate?

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