What Does Contingent in Real Estate Mean? What About Pending?

When you buy or sell an asset worth hundreds of thousands — or millions — of dollars, the legal contracts get complex. Quickly. 

And while “pending” and “contingent” may sound similar to laypeople, they mean slightly different things in real estate legalese. You need to understand that difference as a real estate investor, given the huge dollar amounts involved.

What Does Contingent in Real Estate Mean?

In real estate contracts, the term “contingent” generally refers to a property that is under contract, but the sale is contingent upon the completion of certain tasks or actions. These actions may involve the buyers obtaining financing for the property, completing a home inspection, or having a property investigated for lien or title issues. 

Contingent offers usually involve some type of negotiation between the buyer and seller. The process includes the buyer making an initial offer with contingencies and deadlines, and the seller either accepting, rejecting, or making a counteroffer. If the buyer and seller ultimately reach an agreement on the contract contingencies and follow through with them, then the offer will become firm and the sale will move forward.

Keep in mind that contingent offers are more complicated than other offers, and that buyers should have an experienced real estate agent to help them navigate the process. Additionally, buyers should read all terms and conditions carefully before signing anything and prepare to walk away from a contingent offer if it doesn’t meet their expectations.

It happens in real estate all… the… time. 

Types of Contingencies in Real Estate

Essentially, a contingency in real estate is an event that must occur in order for the sale to go through. Contingencies come in many forms and exist to protect either the buyer or the seller in a real estate transaction. Typically, contingencies provide a way out of the agreement if certain conditions aren’t met. 

You can divide the types of contingencies in real estate into two main categories — buyer contingencies and seller contingencies. They include:

• • Financing contingency: A financing contingency is a type of contingency that is specific to the buyer. It states that the sale of the home is contingent on the buyer being able to secure financing for the purchase. 
  • Home inspection contingency: A home inspection contingency is a type of contingency that allows the buyer to have a professional home inspector go through the property and reveal any issues that may need to be addressed before the sale is final.
  • Appraisal contingency: An appraisal contingency requires the buyer to have the home appraised for a certain value. If the property does not appraise for at least the purchase price, then the sale will not go through. 
  • Sale contingency: You use a sale contingency when the seller doesn’t wish to move unless they have a place to move to. This contingency allows them to accept an offer on the current home, but the sale is contingent on the seller finding a new home to purchase. 
  • Loan contingency: A loan contingency’s intention is to protect the seller in the event the buyer is unable to get financing. This is a common contingency to use in cases where the seller is still in the process of paying off their loan and need to make sure that all of the funds will be available to them at the time of sale. 
  • Title contingency: This contingency involves the buyer verifying that the seller has the legal right to sell the property and entails a clear title history. Additionally, it also serves to protect buyers from potential issues such as existing liens against the property. 
  • Active-first right contingency: These contingencies provide an agreement between the buyer and seller that if the seller receives a higher offer, they must first offer the property to the buyer with the contingency offer, with the right to accept or decline.
  • Active-kick out contingency: Unlike first right contingencies, these require the buyer to remove their contingencies by a certain date or give the seller the right to go back on the market for other offers. 

Understanding the different types of contingencies in real estate can help both buyers and sellers to make sure that their transactions are secure and that all parties are protected. Contingencies essentially provide an escape clause for either party if certain conditions aren’t met. Plus, they help to address any issues that may arise before the sale is complete.