What Does Contingent Mean In Real Estate? [Fully Explained] (2023)

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Table of Contents

• What is a Real Estate Contingency?
• Types of Real Estate Contingencies
• How to Negotiate a Real Estate Contingency
• What Happens When a Contingency is Not Met?
• Tips for Buyers and Sellers on Real Estate Contingencies

What is a Real Estate Contingency?

A real estate contingency is a clause in a real estate contract that outlines a specific condition that must be met before the sale can be completed. These conditions can be related to financing, home inspections, or other factors that could affect the sale of the property.

Contingencies are designed to protect both the buyer and the seller. For buyers, contingencies provide a way to back out of the deal if certain conditions are not met. For sellers, contingencies provide a way to ensure that the buyer is serious about the purchase and has the means to complete it.

It is important to understand that contingencies are not automatic. They must be specifically included in the real estate contract in order to be enforceable.

Types of Real Estate Contingencies

There are several types of real estate contingencies that can be included in a real estate contract:

• Financing contingency: This contingency allows the buyer to back out of the deal if they are unable to secure financing.
• Home inspection contingency: This contingency allows the buyer to back out of the deal if the home inspection reveals significant issues with the property.
• Appraisal contingency: This contingency allows the buyer to back out of the deal if the home appraisal comes in lower than the agreed-upon price.
• Sale contingency: This contingency allows the buyer to back out of the deal if they are unable to sell their current home.
• Contingency on the sale of another property: This contingency allows the buyer to back out of the deal if they are unable to purchase the property unless they sell their current home.

How to Negotiate a Real Estate Contingency

Negotiating a real estate contingency can be a delicate process. Both the buyer and the seller want to protect their interests, so it is important to approach the negotiation with a clear understanding of what you want to achieve.

If you are a buyer, you may want to include contingencies that protect you in case the financing falls through or the home inspection reveals significant issues with the property. If you are a seller, you may want to limit the number of contingencies in order to ensure that the sale goes through.

It is important to communicate clearly with the other party and to be willing to compromise. For example, you may be able to negotiate a shorter contingency period or a higher earnest money deposit in exchange for a financing contingency.

What Happens When a Contingency is Not Met?

If a contingency is not met, the contract may be terminated. This means that the buyer can back out of the deal and the seller can put the property back on the market.

However, it is important to note that not all contingencies are created equal. Some contingencies may give the buyer an opportunity to remedy the issue, while others may not. For example, if the home inspection reveals a significant issue with the property, the buyer may be able to negotiate repairs or a lower price. If the financing falls through, the buyer may be able to secure alternative financing.

It is important to consult with a real estate attorney or agent if a contingency is not met in order to understand your options and obligations under the contract.

Tips for Buyers and Sellers on Real Estate Contingencies

Whether you are a buyer or a seller, there are several tips you can follow to ensure that the real estate contingency process goes smoothly:

• Work with an experienced real estate agent or attorney who can guide you through the process.
• Be clear about your expectations and goals.
• Communicate clearly and regularly with the other party.
• Be willing to compromise and negotiate.
• Understand your options and obligations under the contract.

Conclusion

Real estate contingencies are an important part of the home buying and selling process. They provide a way to protect both the buyer and the seller and ensure that the sale goes smoothly. By understanding the different types of contingencies, how to negotiate them, and what happens when they are not met, buyers and sellers can navigate the real estate contingency process with confidence.