You found your dream home! It’s perfect, in a great location and with all of the amenities. However there is one problem: it says “Pending.” Are you too late to get this house?
Well, it’s complicated. Unfortunately, real estate sales fall through all too often. So, it’s not really over until you see that the home is sold and closed. But “Pending” isn’t the only oddity you’ll see when browsing Real Estate listings. It’s also quite common to see Contingencies placed on contracts. We’re going to focus on these two statuses and compare what they mean to you and whether you can still submit an offer or not.
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What Are Real Estate Contract Contingencies?
When a property goes under contract, both the buyer and seller are promising that they will go through with their agreement. The seller cannot accept another offer and begin a new contract with a different buyer, even though they haven’t yet sold their home. A buyer has to show their seriousness by putting down an earnest money deposit. If the buyer then later walks away from the contract, they lose the deposit.
But what if something comes up during the closing process and one of you doesn’t want continue?
For this reason, both the buyer and seller can add contingencies to their contracts. A contingency means that if certain conditions aren’t met then they won’t have any responsibility or obligation going through with the sale. Examples of such real estate contract contingencies include, but are not limited to:
Home Inspection Contingency
Prospective home buyers don’t often have time to request an inspection before submitting their offers. What happens when the prospective property has major issues that need addressing? This is a smart strategy for buyers who want to avoid major problems before they buy. If any major issues are found, the buyers can simply walk away from the sale without repercussion; keeping their earnest money deposit.
Appraisal Contingency
There’s no suspense quite like a real estate appraisal. With these particular real estate contract contingencies, the buyer’s lender will request an appraisal. This is to ensure the sale price of the home is accurate, and not falsely inflated. This is done to ensure that if the buyer defaults on their mortgage, and the lender repossesses the home, they can recuperate their investment by selling it.
The appraisal is based on the intrinsic value of your home, which can be higher than its market price. Some sellers take advantage of a hot market and therefore lenders will not approve loans for homes without an appraisals that meet their valuation standards. This can also happen when a buyer puts down a very small deposit as the home has to meet the loan-to-value ratio. Again, these real estate contract contingencies allow buyers to walk away with their earnest money deposits.
Buyer Financing Contingency
Another contract contingency that protects buyers is the buyer financing contingency. The appraisal is a big part of securing financing, but that isn’t the only reason the lender may deny their loan. The buyer financing contingency lets buyers out of contracts with their earnest money if lenders deny them a loan.
Previous Home Sale Contingency
Sometimes buyers will make the purchase of this home contingent upon closing their previous sale. Closing usually takes 30-45 days and they may need money from that last deal to pay for a down payment on the next house. This contract contingency is risky and is often overlooked by sellers when included in an offer.
What Is A Pending Contract?
When all the contingencies are met, a listing changes to pending. At this point the listing is no longer considered active even though there hasn’t yet been an official sale – but expect that soon. However, that doesn’t stop other buyers from continuing to make offers.
Pending: Taking Backups
This status means that the seller is still entertaining offers in case of a change. Keep in mind they can’t accept anything until their current offer falls through, so buyers may wait awhile to hear back.
Short Sale
A short sale is when a house sells for less than it owes on the loan. Sellers can accept an offer, but they need to get approval from their lender first before anything happens with that deal. Lenders are slow to respond. Short sales can end up pending for months before anything actually happens, and buyers have plenty of time to wait around if they want it. Backup offers may be placed on homes while you’re waiting.
Real Estate Contract Contingencies vs. Pending Contracts
When you’re looking to buy a home, don’t be afraid of putting down an offer with the aforementioned terms. Contingencies are difficult to fulfill and real estate deals fall through all the time. There’s no reason why you should not try even if the home has already been under contract.
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