What Does Contingent Mean in Real Estate

by May 21, 2021Blog0 comments

When you are new to real estate investing, there will be many new terms that you need to learn. Most of them will be pretty self-explanatory, but others you may need to look up a few times. Don’t feel discouraged, though. Everyone has to start somewhere, and the best thing you can do for yourself is to ask questions and look up words you don’t recognize. The last thing you want to do is fake it and end up using the wrong term in a professional setting. 

If you are going into real estate investing, one of the first distinctions you need to make is what contingents mean in real estate. It is critical when buying a property to understand the difference between contingent and pending. In this article, we’ll outline the difference between the two so you can go into your first deal feeling confident. 

What Contingent Means in Real Estate

When you first start searching for homes, you may see that they are marked as contingent. What does this mean? Essentially, these properties have received an approved offer from a buyer. But, they are still active listings. In this case, the contract between the buyer and seller can be canceled based on certain contingencies. The most common contingencies within real estate are:

Title Search

A typical contingency in real estate is a title search. A real estate investor will hire a title company to search on the property title in this process. This is to make sure there are no liens on the property. If the search comes back and the title is not clear, the investor is able to back out of the contract, and the property will no longer be listed as contingent.

Home Inspection

Real estate investors may also choose to request a home inspection as a contingency. This ensures that the house is safe and there are no issues with the property they are unaware of. If the inspections come back with anything, the buyer can request the seller to fix the issues or opt-out of the contract. 

Home Appraisal

Mortgage providers will often request a home appraisal to determine the amount of money they will lend when financing a home’s final purchase. This is a standard real estate contingency that you can expect to run into as an investor. 

Loan Approval

This occurs less often than the offer contingencies, but it is still something to look out for. Sometimes the seller will approve an offer from a buyer who hasn’t been approved for a loan yet. If for whatever reason, they are unable to get their loan approved, the purchase agreement then becomes void. 

Once all contingencies are met, and both parties are happy with the outcomes, the property will change from contingent to pending. So what is pending in real estate?

What Pending Means in Real Estate

When all of the contingencies for a home sale are met, the property moves into being pending. Once it is pending, it is no longer an active listing. This is the legal step of the home sale. These are the two situations you will run into with your pending real estate investment. 

Short Sale

These are real estate sales where the seller will accept an offer lower than what they owe on their current mortgage. Because these types of sales are dependant on third-party approval, they may drag on longer than typical home sales. 

Taking Backups

Sometimes, sellers will take additional offers – or backups – in case their initial contract falls through. This typically happens when they run into issues during the contingency stage. 

How to Make an Offer on a Contingent or Pending Property

No property is genuinely off the market until the purchase agreement is finalized. So, you can and should make offers on properties that are contingent or pending. This is not as easy as making an offer on an open listing, though, so it will require a little more work. Below are the steps you should take to make an offer on a contingent or pending property. 

Hire an Experienced Real Estate Agent

An experienced real estate agent will be able to guide you through the process and help you, especially if this is your first time working with a contingent or pending property. They understand the complexity of the process and will be your best asset in potentially securing the property. 

Make an Appealing Offer

When you make an offer on a contingent or pending real estate property, your offer has to be more appealing than the one they previously accepted. Consider offering them a cash purchase or a purchase with no contingencies. Be confident before making your attractive offer that the property’s profitability is worth the risk and expense. 

Contact the Seller

Reach out to the seller and establish a good relationship with them. If you can get a good relationship with the seller, you open up a better opportunity for communication. After developing this relationship, they may have more trust in your deal than the original one, and they may sway your way. 

Summary

In order to become a successful real estate investor, you have to know how to find the best houses. By understanding what contingent means in real estate, you open yourself up to a wider market for investment properties. Use these tips to help guide yourself through your first offer on a contingent or pending real estate property. 

For more great information about real estate investing, make sure to check out the rest of our articles. 

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