What is a Contingent Offer?

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Are you considering bidding on a new property, whether it’s a home or a rental? That’s great news! Browsing through NMLS listings and visiting potential properties until you find the perfect one is truly unmatched. However, it can come with some concerns. Whether you’re new to buying homes or an experienced investor, you may have doubts. Issues like problems discovered during a house inspection, a low appraisal, or mortgage affordability can be intimidating. But don’t worry! Contingent offers can help protect your financial interests during the property acquisition process.

In real estate, a contingency is a condition that must be met for the property deal to proceed. There are five types: inspection, appraisal, mortgage, home sale, and title. Before deciding on a contingent offer, consult with your realtor or mortgage lender. They can guide you in making the best decision.

When you see “contingent” in real estate listings, it means the property is under contract, and the sale will proceed once criteria are met. For example, if you’ve accepted an offer on your current home, subject to a clear home inspection, that’s a contingent offer.

A contingent offer is an offer that includes a safeguarding clause for the buyer. It protects buyers from losing their earnest money deposit and committing to a property they can’t afford. The earnest money deposit is a sum that buyers pay to show their intent to buy the property. It’s given when the purchase agreement is signed and is transferred to the buyer’s escrow account if the sale is successful.

The goal of a contingent offer is to create a mutually beneficial agreement for both the buyer and the seller. Buyers can choose the number and types of contingencies they want to include. Sellers can accept, reject, or counter a contingent offer. Additionally, sellers can include a kick-out clause, allowing them to continue showing their property even after accepting a contingent offer. This provision provides a safety net for their financial interests in case the contingent offer doesn’t work out. However, sellers can’t back out of a contingent offer just because they receive a more lucrative offer.

Real estate transactions often involve five key contingencies that every homebuyer should know. These include contingencies for home inspections, appraisals, financing, home selling, and mortgages. Here’s a detailed look at each type.

Approximately 80% of homebuyers include a home inspection contingency in their purchase contract. This allows the buyer to back out and get their deposit back if a major issue is found during the inspection. The buyer is responsible for choosing a certified home inspector and scheduling the inspection.

An appraisal contingency states that the sale depends on the property’s appraisal. It ensures buyers pay a fair price. If the appraised value is lower than the sale price, the buyer can withdraw their offer.

A mortgage or financing contingency allows the buyer to back out if they can’t secure necessary financing within a specific period. It confirms buyers have the funds they need.

A home sale contingency is useful for buyers who need to sell their current home before closing on a new one. If the buyer’s home doesn’t sell within a specified timeframe, they can back out.

A title contingency protects buyers from purchasing a property with liens, which are legal claims used as collateral to satisfy a debt. The seller must resolve all liens and title issues before finalizing the sale.

The suitability of a contingent offer depends on various factors. Consulting with your real estate agent and mortgage lender can help you make an informed decision. Contingent offers provide a way for homebuyers to protect their financial interests. Your realtor or mortgage lender can help you determine if a contingent offer is right for you.

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