Navigating the online real estate market can be confusing, especially when you encounter property listings with statuses beyond “active” and “sold.” Terms like “contingent” and “pending” often appear, indicating that a property is under contract. But what exactly do these terms mean for potential buyers and sellers? Understanding the nuances of “contingent” versus “pending” is crucial for anyone involved in a real estate transaction.
This article will delve into the meaning of “contingent” in real estate, differentiate it from “pending,” and clarify what each status signifies for you in your home buying journey.
Decoding “Contingent” in Real Estate: Conditional Acceptance
In real estate, “contingent” signifies that a seller has accepted an offer from a buyer, but the final sale hinges on certain conditions being met. Think of it as an agreement that is conditional. These conditions, known as contingencies, are clauses in the purchase agreement that protect the buyer (and sometimes the seller) and allow them to back out of the deal if specific requirements aren’t fulfilled.
Contingencies are a common and vital part of real estate transactions because numerous steps must be completed between contract acceptance and the final closing. For instance, most buyers require financing to purchase a home, and this financing needs to be secured before the sale can proceed.
Common Real Estate Contingencies: Safeguards for Buyers
Several common contingencies are routinely included in real estate purchase agreements to protect buyers during the transaction process. These contingencies provide buyers with an “out” if certain issues arise, ensuring they don’t get locked into a bad deal.
Home Inspection Contingency: Ensuring Property Condition
The inspection contingency grants buyers the right to have a professional home inspector thoroughly examine the property. This inspection assesses the home’s structural and mechanical condition. Depending on the specific wording in the purchase agreement, if the inspection reveals significant problems, the buyer may have several options:
- Cancel the contract: Walk away from the deal and get their earnest money back.
- Request repairs: Ask the seller to fix specific issues before closing.
- Negotiate a price reduction: Adjust the purchase price to reflect the cost of necessary repairs.
This contingency is crucial for buyers to avoid purchasing a property with hidden problems that could lead to costly repairs down the line.
Appraisal Contingency: Validating Property Value
The appraisal contingency protects buyers (and their lenders) by ensuring the property is worth the agreed-upon purchase price. A licensed appraiser assesses the fair market value of the home. If the appraisal comes in lower than the purchase price, it creates a gap. In this scenario, the buyer has options:
- Cancel the contract: Terminate the agreement, especially if financing depends on the appraised value.
- Renegotiate the price: Ask the seller to lower the price to match the appraised value.
- Cover the appraisal gap: Pay the difference between the appraised value and the purchase price out of pocket. However, if financing, the lender might limit the loan amount to the appraised value, requiring a larger down payment from the buyer.
Lenders often require an appraisal contingency to protect their investment, ensuring they are not lending more than the property is actually worth.
Financing Contingency: Securing Mortgage Approval
A finance contingency, also known as a mortgage contingency, provides buyers with a specific timeframe to secure the necessary financing to purchase the property. This contingency acknowledges the possibility that a buyer might not be approved for a mortgage. If the buyer is unable to obtain loan approval under satisfactory terms, they can:
- Cancel the contract: Terminate the purchase agreement and recover their earnest money.
- Re-evaluate financing options: Explore alternative lenders or loan programs, if time permits.
This contingency is essential for buyers who are financing their purchase, preventing them from losing their earnest money if they cannot secure a loan.
Title Contingency: Ensuring Clear Ownership
The title contingency safeguards the buyer by ensuring the property has a clear and marketable title, free from encumbrances or ownership disputes. A title search is conducted to examine the property’s ownership history. If title issues arise, such as:
- Liens or judgments: Claims against the property.
- Ownership disputes: Uncertainty about who legally owns the property (e.g., in cases of divorce or inheritance).
The buyer can:
- Cancel the contract: Terminate the agreement if title issues cannot be resolved.
- Require the seller to clear title: Demand the seller resolve the title issues before closing.
This contingency protects buyers from inheriting legal problems associated with the property’s ownership.
Home Sale Contingency: Selling an Existing Property First
A home sale contingency is used when a buyer needs to sell their current home to obtain the funds for the new purchase. This contingency allows buyers to:
- Delay closing: Postpone the closing date on the new property until their existing home is sold and closed.
- Terminate the agreement: Back out of the purchase if they cannot sell their current home within a specified timeframe.
This contingency is crucial for buyers who are contingent on the sale of their existing property to have the financial resources for the new purchase.
Understanding Contingent Listing Statuses: Continue to Show and Kick-Out Clauses
Within the “contingent” status, you might encounter further distinctions that provide more insight into the situation of the property listing.
Continue to Show (CTS): Seeking Backup Offers
A “Continue to Show” (CTS) or “Contingent Continue to Show” (CCS) status indicates that while the seller has accepted an offer, they are still actively marketing the property and welcoming showings and backup offers. This status suggests that the seller might have concerns about the current contract’s likelihood of closing, perhaps due to lengthy or uncertain contingencies. For potential buyers, a CTS status can represent an opportunity to submit a backup offer in case the primary deal falls through.
No Show: Confidence in Current Contract
A “No Show” contingent status suggests that the seller is confident in the current contract and has chosen to stop actively seeking further offers or showings. They are focused on working with the current buyer to fulfill the remaining contingencies and move towards closing.
Kick-Out Clause: Seller’s Protection in Contingent Offers
A “kick-out clause” is a provision that can be added to a contingent offer, primarily protecting the seller, especially when a home sale contingency is involved. It allows the seller to continue marketing their property, even while under contract with a contingent buyer. If the seller receives another, more favorable offer (often non-contingent or with fewer contingencies), they can “kick out” the original buyer by giving them a specified timeframe (usually 24-72 hours) to remove their contingencies. If the original buyer cannot or chooses not to remove their contingencies, the seller is then free to accept the new offer.
What Does “Pending” Mean in Real Estate? Approaching Closing
“Pending” in real estate signifies that all contingencies have been successfully resolved, and the transaction is moving towards final closing. It indicates a higher degree of certainty that the sale will be completed compared to a “contingent” status. Essentially, the deal is expected to close as planned.
However, it’s worth noting that in general usage, “pending” can sometimes be loosely used as a synonym for “under contract,” regardless of the contingency status. Therefore, understanding the specific context within real estate listings is vital.
Types of Pending Statuses: Nuances within Pending Listings
Similar to “contingent,” the “pending” status may also have subtypes that provide further details:
Pending – Taking Backups: Still Open to Offers
“Pending – Taking Backups” indicates that while the property is in the pending stage, the seller is still open to receiving backup offers. This might be because closing is still some time away, or there are minor remaining hurdles. It presents a potential opportunity for buyers to submit an offer in case the current deal encounters unforeseen issues.
Pending – Short Sale: Lender Approval Required
“Pending – Short Sale” signifies that the property is being sold as a short sale, meaning the sale price is less than the amount owed on the mortgage. Short sales require approval from the lender or bank holding the mortgage. This approval process can be lengthy and uncertain. The “pending” status here reflects that the contingencies are likely cleared between buyer and seller, but the deal is pending the lender’s approval of the short sale terms.
Pending – No Show: Confident in Closing
“Pending – No Show” status, similar to its contingent counterpart, indicates that the seller is confident in the pending sale and is not accepting further showings or offers. They are focused on completing the final steps to closing with the current buyer.
Pending – More Than 4 Months: Potential Delays or Status Issues
“Pending – More Than 4 Months” is a status that suggests the transaction has been pending for an extended period, exceeding four months. This could indicate potential delays in the closing process, or it might be a sign that the listing status has not been updated to “sold” after the closing was finalized.
Contingent vs. Pending: Frequently Asked Questions
Does Pending Mean Sold?
No, “pending” does not mean “sold.” “Pending” signifies that the property is under contract, contingencies are resolved, and the sale is expected to close. However, the sale is not final until closing and funding are completed, and the status is officially changed to “sold.”
Can a Seller Back Out of a Contingent Offer?
It’s possible, but it depends on the specific terms of the purchase agreement and the contingencies in place. For example, if a buyer fails to secure financing within the agreed timeframe under a finance contingency, the seller might have the right to terminate the agreement. Similarly, a kick-out clause allows sellers to back out under specific conditions.
Can You Make an Offer On a House That Is Pending or Contingent?
Yes, you can make an offer on a property listed as “pending” or “contingent.” These are known as backup offers. While the seller is already under contract, there’s always a chance the existing deal might fall through. Your backup offer might be considered if the primary contract terminates.
Is It Worth Looking at a House That Is Contingent?
It might be worthwhile to consider viewing a contingent property, especially if it is listed as “Continue to Show.” Contingencies can sometimes lead to deals falling apart. If the current buyer encounters difficulties satisfying contingencies, the seller might consider backup offers. Consulting with your real estate agent can provide valuable insight into the likelihood of a contingent deal closing and whether submitting a backup offer is a viable strategy.
Contingent vs. Pending: Key Takeaways
Both “contingent” and “pending” statuses in real estate indicate that a property is under contract after an offer has been accepted. The critical distinction lies in contingencies. “Contingent” means the sale is conditional upon fulfilling specific contingencies, while “pending” means these conditions have been met, and the transaction is progressing towards closing. As a buyer, understanding these statuses is essential for navigating the market and identifying potential opportunities, including submitting backup offers on properties that are under contract but not yet sold.
