Contingent Versus Pending Sale

Real estate involves several terms that may be confusing. For instance, you might not know the difference between a contingent vs. pending sale. Knowing what these words mean will give you an advantage when it comes to buying and selling homes.

What Is a Contingent Sale?

When you put an offer on a house, there are usually one or more conditions attached that allow the buyer or seller to get out of the contract. These clauses ensure that the deal is fair and that both parties can complete the sale. Common contingencies include:

Financial contingency—Potential homebuyers can opt for mortgage prequalification or preapproval. The latter requires a much more rigorous process and comes with a higher chance that financing will come through for the home loan. Unfortunately, financing is never guaranteed. A lender can reject an application for all kinds of reasons. This type of contingency allows a seller to reject an offer and move on to another buyer if financing falls through.

Appraisal contingency—Seller markets (and wishful thinking) can bloat the price of a house beyond reason, but mortgage companies won’t lend you more than a property is worth. An appraisal contingency allows the buyer or the seller to back out of the contract if the appraisal comes in below the offered purchase price.

Inspection contingencies—You should schedule a home inspection before buying a home, and depending on the property, you may need more than one kind. Aside from a general inspection, you can get an assessment on the roof, plumbing, septic tank, as well as for hazards like asbestos and mold. Problems that turn up during inspections can lead to further negotiations or the termination of a sale.

Title contingency—Similarly, you should perform a title search before the purchase of a home. Property can be owned by more than one person. It can have old debts attached to it in the form of a lien. There can be easements, which give another party partial possession or use. An easement that allows a neighbor to share a driveway is fairly common, for instance. When buyers discover surprises during a title search, a contingency allows them to back out of a deal.

Kick-out contingency—Sometimes a buyer doesn’t have the income or credit to carry two mortgages at once. A kick-out contingency is an offer that depends on the buyer selling their current house before completing the new purchase. Kick outs are usually limited to a short period of time. If the buyer hasn’t sold their home before it’s up, the seller can move on.

First Right of Refusal—Also called an Active First Right listing, the first right of refusal allows a seller to accept one offer while considering other options. The first buyer has the right to match any future offers, but the seller can select a different contract if it comes with better terms.

Contingencies are very common, but you can put down an offer without them. This gives you an advantage over other buyers. It also puts you at the most risk.

What Is a Pending Sale?

What’s the difference between contingent and pending sales? In a pending sale, the sellers are no longer looking for buyers. The properties aren’t listed for sale in multiple listing services (MLS). They don’t show up in online real estate searches. The buyer and seller are simply waiting for the financial and legal aspects of the process to conclude. That said, here are a few common types of pending sales and how they impact buyers and sellers:

Short Sale—Selling a home for less than is owed on the mortgage is called a short sale. They’re often used as a way to avoid foreclosure, which is one of the reasons they take so long to sort out. The bank needs time to evaluate offers and ensure it’s in their best interests. That time is doubled if there’s a second loan on the property and even longer if a government agency, such as the FHA, is involved. The process can take six months or longer and many times results in a denial.

Taking Backup Offers—If a home you desperately want to buy already has a pending offer, you can submit a backup offer. It’s as binding as any offer you’d make on an active listing, but it depends on the existing contract falling through. Sellers won’t always consider a backup offer. When they do, you can wind up waiting a month or more just to be denied. In the meantime, you won’t be able to put offers in on other properties either, so it’s not a decision to make lightly.

Over Four Months—This notation shows up in the MLS when a home has been in pending status for four months or longer. Sometimes, this is due to nothing more than an agent forgetting to update a listing. Other times, it’s a sign that there is a problem with the closing and may present an opportunity for savvy buyers to get a good deal.

It’s easy to understand the basics of contingent vs. pending sales. It’s another to know how to best use them for your benefit. Then again, few home sales are cookie-cutter.

Contact a Homeinc advisor today with questions. Call or text 1-888-85-2636 or visit our website at www.homeinc.com