In competitive real estate climates such as the one we're seeing in 2024, buyers and sellers need to be informed about common contingencies in home purchase agreements to make wise transactions. When considering a home offer or buying a house, there are often negotiations to be made and criteria to be met before a sale is finalized.
What does it mean if a home is “contingent”?
When a listing is marked as “contingent,” it means the person selling the home has accepted an offer from a buyer with certain conditions. These conditions (or contingencies) will have to be met before the deal is finalized.
Home sale contingencies can protect both the buyer and the seller. If these conditions are not met, the sale of the property will terminate. (So if your dream home is listed as “contingent,” there’s still a possibility you can place an offer on it and have it accepted!)
When are contingencies negotiated?
Contingencies are typically negotiated throughout the homebuying process. Buyers can include contingencies in the offer they make on the home, allowing the seller to accept the contingencies or negotiate them. When accepting a home purchase offer, sellers may have contingencies of their own, such as buying a new home before closing or dates by which inspections must be completed.
Once all contingencies - from home inspections to loan approval - are considered complete, the buyer and seller can sign off and complete the sale.
What are the different types of home sale contingencies?
Let’s take a closer look at some of the most common contingencies home buyers and sellers in Virginia Beach and beyond may encounter in 2024:
Inspection Contingency: It’s a smart move for buyers to have at least one home inspection completed before guaranteeing their offer on a home. General inspections confirm the condition of the home and can provide an assessment on plumbing, appliances, roofing, and the interior and exterior integrity of the home. This is an important step for buyers who want to make sure they are making a wise investment. If the inspection results are poor, the buyer can back out of the sale or ask for repairs. Buyers can also choose to have additional inspections conducted by specific contractors, such as an electrician, pool inspector, or HVAC expert.
Buyer’s Sale Contingency: Many times buyers will need to sell their current home before they can afford a new property. This contingency protects buyers if their current residence doesn’t sell, allowing them to back out of the contract without any legal repercussions.
Seller’s Sale Contingency: Similarly, sellers may write into the contract that the sale is contingent on their purchasing a new home before closing.
Financing Contingency: This is one of the most common contingencies as over 80% of homebuyers use some kind of financing support. Home loans require certain criteria to be met for the buyer to qualify, including a home appraisal and the buyer’s debt-to-income ratio.
Lead-Based Paint Inspection: Houses built in or before 1978 must be inspected for lead-based paint, and this information must be provided to the buyer. Buyers do have the option to waive this inspection.
Viewing the Property: In current competitive markets such as Hampton Roads, a buyer will often make an offer before even viewing the property in person. Therefore, the offer may be contingent on a viewing of the property.
Do sellers have to agree to contingencies?
Sellers are not required to agree to any contingencies proposed by the buyers. They can negotiate with buyers on any proposed contingencies, or they can reject the offer. If the result of a home contingency (such as an inspection) leads to new demands from the buyers, the sellers can refuse to address them, and the contract could dissolve.
Don't forget to add contingencies to your Net Proceeds Calculator when selling your home.
Are “Contingent” and “Pending” real estate listings the same?
Home listings often remain active while “contingent” in case the deal falls through due to unresolved contingencies or failed negotiations. “Pending” status, however, indicates that the contingencies have successfully been met or negotiated, and the sale is being processed.
Both “contingent” and “pending” sales are considered “under contract,” which means that the seller is currently working exclusively with one buyer but that the sale has not yet been finalized.
Should I use contingencies when I make an offer in a competitive market?
When demand is high and supply is low, buyers want to make sure that they are crafting competitive offers to have their contracts accepted. Avoiding certain contingencies - such as a solar panel inspection or a buyer’s sale contingency - can make your contract more appealing to the seller.
However, some contingencies can’t be avoided - and shouldn’t be. For example, sometimes a loan simply cannot be procured unless the buyer’s house sells first. Other times, contingencies can be negotiated in ways that keep an offer competitive. Home inspections are always wise, but buyers can guarantee they won’t ask for any repairs. An appraisal may be required by the buyer’s lender, but the buyer can always promise to pay the difference in cash if needed.
THE BOTTOM LINE
Home contingencies play an important role in the home buying and selling process. They can protect 2024 buyers when included in home purchase agreements, though they can also be the reason an offer isn’t accepted. Sellers may consider potential delays caused by contingencies when deciding between multiple offers.
Whether buying or selling a house, always work with a local real estate professional who knows how to leverage contingencies to your advantage.