contingency contract

What does contingent mean in real estate? This is a question that can be very confusing, due to the fact contingencies can come in many different forms. I’ll discuss each in this article.

Contingent MLS Listing Status

What does contingent mean in regards to the MLS listing status? It means the seller has entered in to a contract with a buyer that has contractually made the purchase contingent on their ability to sell an existing home they own.

A contract is typically contingent for the following reasons:

  • The buyer cannot qualify for financing due to the fact that they cannot qualify with an existing mortgage as well as a new mortgage (the home they are buying) based on their debt to income ratio.
  • A buyer is not able to fund the down payment and closing costs without the proceeds from the sale of their current home.
  • The buyer is able to qualify for two mortgages, but they simply are not willing to take on that risk.

There are numerous other “contingencies” that could be present in a real estate transaction. Typically those “contingencies” are a result of the buyer’s financing. Keep in mind, I am discussing transactions in Texas, other states may have different forms of contingencies that are similar.

Third Party Financing Contingency

Most contracts where the buyer is receiving a loan are contingent on the buyer obtaining third party financing (a mortgage). There is a Third Party Financing addendum attached to the purchase contract that outlines the financing contingencies. When it comes to the Third Party Financing Addendum, there are additional contingencies included in that addendum.

  • Buyer Approval Period: The buyer approval contingency is the period of time in which the buyer has met all of the lenders requirements related to the buyer’s assets, income, and credit history to be approved for the loan.
  • Appraisal Contingencies: Some transactions have contingencies surrounding the appraisal. For example, an FHA or a VA loan has a section in the third party financing addendum that states the home must appraise at a certain price (most commonly the contracted sales price). If it doesn’t, the buyer is able to terminate the contract and receive a refund of their earnest money. Other scenarios may have the buyer fully or partially waiving their appraisal contingency. They could then contractually agree to bring additional money to the table should the home not appraise at the contract price.

How might a contingency negatively effect a home buyer.

In a seller’s market, a home buyer that needs a contingency to sale their current can put them at a massive disadvantage against other competing buyers. Seller’s want to know the buyer that they enter a contract with is going to get to the closing table on time with as little risk as possible. Because a contingent sale means another transaction must close in order to be successful, the risk sky rockets.

What can a buyer do to work around their contingency? Luckily it’s 2021 and there are some great options out there to make a buyer more competitive even when they have an existing home they need to sell.

How to work with a continent transaction.

UpEquity is an example of a company that not only helps buyer’s navigate a contingent transaction, but also gives them a leg up agains’t other buyers. Here’s how it works in a nutshell:

  1. UpEquity purchases your existing home with cash based on an unbiased third party appraiser (the same type appraiser that would be used in any transaction). This frees you up to be able to purchase your next home without needing to sell.
  2. UpEquity allows you to stay in your home until you have secured your new home at a reasonable fee
  3. UpEquity works with you to secure a new loan for the home you want to purchase and once they have you pre-approved, you are eligible for their All Cash Offer Program. This means they back your offer with their cash, so from the lens of the seller, you appear to be a cash buyer. This makes you look much more appealing compared to other traditional financed buyers.

We have had the pleasure to work with UpEquity on numerous transactions so we have seen it work first hand.

The Bottom Line

Hopefully now when you get the question, what does contingent mean in real estate, you will be able be able to answer like a pro. If you’d like further information about contingent houses or buying a home, reach out to an expert to learn more.

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