What Is A Contingent Offer?

It’s a situation most home buyers and sellers find themselves in, the delicate balancing act of selling their house first to purchase a new one. 

To ease the tension of transfers, many bite the bullet and say, “I am going to make a contingent offer on a house.” 

But what is a contingent offer? 

What is a contingent offer? 

As mentioned, there are many transactions that need to be juggled when buying and selling a home. And real estate deals can be complex and often can fall short for a number of reasons. 

Contingencies are clauses put into a contract to ensure that all the main aspects of the deal are met. These can apply to both buyers and sellers. 

For a buyer, it may be a contingency that is suggested to help ease the process of finding funds, that the home is appraised, and that structural issues are taken care of. 

While for a seller, it’s a to-do list of problems to solve, ensuring that funds reflect and that certain touchpoints are addressed. 

These steps are put into place so that the buyer and seller come out of this complex deal with what they want, and so that both parties are financially protected.

What are these duties that both parties will need to undergo to meet these contingencies? 

House sale contingency for sellers and buyers

In these arrangements, the prospective home buyer normally draws up the conditions. What is stated in the document are steps that need to be met before the house sale can be finalized.

For the buyer, it might state they need to sell their home first, or they could ask for an appraisal of the property, or make deposits into the escrow account. The buyer’s main duty is securing funding.

 If these aren’t fulfilled, the seller can pull the deal off the table without any financial repercussions. 

With the seller, this same document will have a to-do list usually of tasks that include, renovations, maintenance, getting an appraisal that’s equal to the asking price, or just keeping the home as-is* (*only likely if the buyer is a real estate investor). 

When a seller has accepted an offer with contingencies, there are a number of standard clauses stipulated in these deals. 

What are typical contingencies?

It might be hard to believe but a buyer can suggest anything as a contingency in their offer letter to their seller. 

But this being said, if you are going to suggest unreasonable requirements, the seller can easily reject your offer. 

Also, sellers are not obligated to accept all, if any, of your suggested contingencies. Which means you might need to meet them in the middle and make compromises. 

As a buyer, it is your duty, with the help of your realtor if you have one, to decide what will be reasonable, and what will scare the seller off. There’s nothing more frustrating for a potential seller than receiving an unreasonable offer. 

Now that we understand that these contingencies need to be reasonable and that you might need to renegotiate them, here are some normal ones to suggest. 

Home inspection contingency

This is different from a viewing of your home. A home inspection refers to an unbiased inspector that is contracted to find if there are any underlying issues in the home. 

While this can be deemed a benefit for the buyer, it can be useful information for the seller as well, as they might not know of underlying problems. This will help them have a buyer purchase the property and sue them for hiding defects from them. 

The home inspector is only contracted to evaluate the inside and outside of the property, and look for any damage or excessive wear and tear on the house. And will take place unusually after a few days of accepting the deal from the buyer. 

Also, this will usually take place before the appraisal happens. The buyer is usually financially responsible for this inspection and if there are any major issues discovered during this process the buyer is allowed to walk away. 

But if there are no issues, then the appraisal happens next. 

Appraisal contingency

As mentioned, if this deal is being financed by a financial institution, then the buyer could be required to have an appraisal conducted. 

These are normally conducted by an appraisal company, not associated with the bank, and are meant to provide an accurate price for the home. 

An appraisal contingency and a financing contingency are often paired together. This is mainly because the lender wants to make sure they can reclaim back their investment. Often in an appraisal report, there will be a list of repairs the lender should request before providing the funding. 

Also, an appraisal contingency will help assure the buyer that they are paying the right amount for the home. And if needs be, it gives another avenue to back out of the deal with the seller. 

Now, if this step has been addressed, it’s time to talk about financing. 

Financing contingency

Also sometimes referred to as ‘the mortgage contingency’ this is the step that answers the question, “How to buy a house contingent on selling yours?” 

This lays out how the buyer is going to finance the purchase of the home. It’s important to note, even though they might have prequalification for a loan, what you really want to see is that they already have pre-approval on the mortgage. 

Having pre-approval means they can start with the home buying process. 

After getting to this stage of the process and meeting the contingencies, the buyer still needs to get approval on the mortgage. The banks will need to take an in-depth look at the buyer’s financials and determine whether they can loan them the money. 

It’s also worth mentioning that the lender can still deny the loan request. 

There are a number of mistakes the buyer can make that would have a domino effect and ruin the pre-approval status (other than a bad credit rating). These include:

Not having the correct documents

A change at the financial institution

Or a significant change in the buyer’s financial situation since getting the pre-approval.

The last point has a lot to do with the personal finances of the buyer and can be brought on by:

• Number of large purchases
• Loss of job security
• Loss of job
• Family mishaps

If this contingency isn’t met within a number of days or the agreed-upon timeframe, the buyer will receive their money back and the contract is canceled. 

This also happens if the buyer doesn’t inform the seller of the financial situation. 

Title contingency

One of the most important contingencies is the title contingency. This is the title report document, which will have a detailed record of the home’s history. A title contingency will state that this part of the deal will only be processed if the home is free and clear of any liens (or outstanding debts to other parties). 

This will normally be reviewed by a real estate lawyer or title specialist, who will review the title on the home before starting to close the deal. 

If there are any issues, the lawyers or specialists will resolve any discrepancies found so that the buyer can have the tile of the property without debt attached to it. 

You can also consider taking out a title insurance policy, which would pay out the buyer if issues arise. After all, this could result in other parties laying claim to your new home. Also, it will cover legal fees if representation is required. 

These are the usual contingencies involved with the normal process of buying and selling a home. But honestly, there’s still so much more that could be discussed. 

However, for some sellers reading this, all they want is an uncomplicated cash deal where they just sign on the dotted line, and sell their home – as-is. 

So, why not just sell your home as-is to House Buyers of America?

House Buyers of America will pays cash for homes

We buy houses for cash. Our Real Estate Consultants are always able to take your phone call, or you can fill out our quick form. 

When you decide to give us a call at 855-659-3289, or use our 
online form we’ll give you a fair cash offer within 10 minutes. 

If you accept the offer, your Real Estate Consultant, who will arrange a meeting at your home. 

They will then come to you with the paperwork, and once you’ve signed the funds will reflect in your account in as soon as 7 days!

Once our Real Estate Consultant takes you through all the paperwork, and you’ve signed the contract, you will see the cash in your account in a matter of days.