As a home seller, you might be wondering what the difference is between “pending” vs “contingent” offers. We’ve spent some time explaining the terms in the past, but it can still get a little confusing when they are (mistakenly) used interchangeably for real estate listings. Let’s revisit the terminology, with an emphasis on how they are very clearly different.
The 30,000-Foot View
A quick recap of the real estate definitions for a pending or contingent home.
Pending: A pending status means there is an agreement between a buyer and seller, in which the buyer has submitted an offer and the seller has accepted the offer at a specific purchase price. The sale has not yet been finalized, but all the conditions have been met in order for the sale to close. Once a sale is pending, it is highly unlikely the deal will collapse. It is also extremely unusual for a seller with a pending sale to accept any other backup offer on their home.
Contingent: A contingent listing means there is a written agreement between a buyer and seller, in which the sale is contingent upon certain conditions being met. These conditions can include, but are not limited to, the buyer securing financing, the buyer selling their current home, or the property appraising for a certain value. Once an offer is accepted with contingencies, it is unlikely the deal will collapse, but not impossible. (Fewer than 5% of contingent offers fall through, according to Chase. Rocket Homes also cites the same figure from presumably the same NAR report). It is far more common for the seller's real estate agent to accept backup offers when they have previously accepted an offer with contingencies.
A Closer Look
A sale pending means an offer has advanced beyond a contingent stage; it is closer to finalization, with the remaining paperwork a mere formality. However, some offers can shoot straight from accepted to pending, bypassing any contingencies. All-cash offers often induce this direct path. An earnest money deposit (a good faith, upfront partial payment of the full down payment). When it is a very hot sellers’ market, with myriad offers being made for their property, non-contingent ones will also become more prevalent to distinguish themselves from the host of other suitors.
NOTE: the term "pending short sale" has a slightly different meaning. A short sale means the accepted offer is less than what the seller owes their bank, so when this type of sale has a pending status it means the homeowners is hoping to get approval from the financial institution to proceed. Unsurprisingly, these can often get rejected so most listings with this status continue accepting backup offers as a backup plan during the sale process.
The terminology of contingencies are unsurprisingly borne out of contract law. Creating obligations should an event collateral to the contract occur (or not occur)… definitely sounds like an attorney’s dream. Yet there is good reason contingent contracts have been recognized within the United States since the 1870s. The sheer magnitude of any type of real estate contract / agreement and the money involved introduces a number of potential failure points. A contingent home usually contains a kick out clause that allows the owner to find a backup offer in the event that the deal with the first home buyer falls through. Good real estate agents know how to include this without requiring legal assistance.
Common Contingencies
The five following issues comprise the bulk of home sale contingencies.
Financing: Unless the offer is all cash, the buyer will need to secure a financing from a mortgage lender that works for them. Usually a buyer has prequalified for a loan, but often their finances swiftly evolve. This is what is called a financing contingency.
Appraisal: Lenders want to make sure the property is worth more than what they have pledged to lend a buyer. Otherwise it would be a bad business deal for them to offer that mortgage. Low appraisals can rapidly torpedo an accepted offer. This is what is known as an appraisal contingency.
Other Sale: All buyers want to avoid paying double mortgages, so one possible contingency is securing a buyer for the property they are vacating within a certain time horizon.
Title: A clean title report is always expected, but unexpected anomalies can arise in a real estate transaction. Liens or claims by other parties constitute major red flags. This is what is deemed a title contingency.
Inspection: Similar to appraisal and title, an uneventful report is important. Any damages or pests or previously undisclosed issues can put the sale in jeopardy. Nothing panics a buyer quicker then a surprise fixer-upper. This is called a home inspection contingency.
Conclusion
Now that you know the difference between pending and contingent listings, you can move forward with confidence when selling your home. Remember, if you receive a contingent offer, there are still some things that need to be ironed out before the sale is final. These items likely revolve around: appraisals, inspections, financing, title reports, and a buyer selling a previous home. However, once the offer is pending, congrats! You’re one step closer to officially handing over the keys to your home’s new owner, and banking the cash from your sale. Contingent vs pending, now you'll never be confused during the home selling or home buying process.
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