Contingent vs. Pending: What you need to know
Buying a home involves many visits to properties, online searches and other research. The mortgage process itself is a lengthy activity. At the end of this hefty investment of your time, the home you want to buy may have terms attached to it that you are unfamiliar with, words such as contingent and pending.
What is the difference between contingent and pending? Does one or the other mean your dream home is no longer available? Let us walk you through what these vital real estate statuses signify for you and for your potential new space. For buyers, the good news is the terms discussed below generally favor you.
What does contingent mean?
In terms of a housing transaction, contingent means the seller has accepted the buyer’s offer with contingencies. The buyer must meet these contingencies -- or in other words, requirements -- for the sale to proceed. If the buyer fails to do so, the seller can back out of the deal. There are also times, which are not as common, when sellers must meet contingencies, or the buyer can back out of the deal -- often without forfeiting earnest money, essentially the deposit you have made to prove you are engaged in a good-faith effort to buy the house.
What does pending mean?
In terms of a housing transaction, pending means the seller has accepted the buyer’s offer, and the contingencies have been met. However, the transaction has not been completed. No title or deed to the home has changed hands. The pending offer can hit obstacles that can put the house back in play.
Aside from being an extremely important term to potential buyers, pending home sales are the leading indicator of housing market health.
What are common contingent statuses?
The four contingencies below are included in the lion’s share of real estate contracts:
A home inspection clause in a real estate contract is almost a given, as home inspections bring to light any problems with the house. Once the inspection comes back, the buyer can negotiate fixes with the seller or even back out of the sale altogether. Home inspection contingencies have different rules depending on what state you live in.
A residential appraisal is an unbiased opinion of a home’s market value which helps the lender decide how large the mortgage should be. The appraisal contingency can alert the buyer he or she is buying a home for more than its fair market value. If the offer is estimated to be above fair market value, the buyer can terminate the contract. The seller also has the option of lowering the purchase price.
The financing contingency gives the buyer a set amount of time to find a mortgage lender and procure a loan to help pay for the property. The length of time is often 30-60 days. If the buyer is unable to secure financing by the agreed-upon date, he or she can withdraw from the contract.
This contingency is an important one and one that is included in many real estate contracts. The seller must be able to deliver a title that is free of liens, violations and other problems that would otherwise nix the home sale.
What are common pending statuses?
Common pending statuses are not as frequent or widespread as common contingent statuses. But there are two that pop up on occasion:
Backup offers accepted
The seller is not confident the pending sale will go through, either because the buyer may get cold feet or for other reasons. The seller has every right to consider backup offers until the sale has closed, but he or she cannot act on them unless a contingency is not met on the binding sales agreement signed by all parties.
Despite the meaning of the word short, the term short sale often extends the home-buying process. The seller’s lender must approve each step of the sale, since it is considering whether to take less than what is owed on the mortgage because of the homeowner’s financial situation. The lender could end up rejecting the sale by the end of the process, which can take months.
Can you negotiate contingencies?
You can negotiate contingencies. For the buyer, this can include whether the home passes a mold inspection.
Can a seller cancel a contingent offer?
A seller can not cancel a contingent offer. But if a buyer cannot meet an agreed-upon contingency, then the sales agreement is voided.
How long do contingent offers and pending offers take to close?
By definition, contingent offers will take longer to close than a pending offer (once contingencies are met, the status moves to pending), but the speed to the finish line for either offer depends upon a number of factors, including whether the buyer needs to secure financing or will be paying in cash. Some homes can close in a week, especially if the buyer is paying in cash, while others take months to finally change hands.
Should you make an offer without contingencies?
If there is a bidding war and the house is your dream home, the seller will likely prefer your offer if there are no contingencies. Why? It means fewer headaches for the seller and saves him or her money, since the seller will not need to undertake home fixes that are usually part of contingencies. But making an offer without contingencies is extremely risky for the buyer.
Understanding the difference between contingent and pending is something every potential homebuyer should know at the beginning of the process rather than discovering it at the end of what can be a winding, lengthy exercise. The terms contingent and pending will pop up during an initial online search of homes, and getting a handle on how they affect your purchase is a crucial step in forging ahead in the homebuying process. Without a clear understanding, the potential homebuyer is at a disadvantage, especially in terms of having protection during the mortgage loan process, because contingencies are designed to safeguard his or her interests.