The Difference Between These Real Estate Terms
Contingent vs. pending
As you scroll through real estate listings, you might come across properties labeled as “contingent” or “pending.” But what’s the difference? We’re going to explore the terms contingent vs. pending.
You’ll likely wonder what these mean unless you possess professional insight. And you’d be right to because they each carry a different meaning.
So, let’s delve into the comparison of contingent vs. pending.
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Contingent vs. pending: Contingent listings
The first major point of difference is that a contingent listing is still active. The seller has accepted an offer but it was submitted with contingencies. And that means the buyer can withdraw if certain events don’t happen.
Sometimes, buyers and sellers agree on time limits on contingencies. Those contingencies must be met within a specified period, often 30 or 60 days. If they’re not, either party may withdraw from the deal and the buyer could lose the home.
Common contingencies include:
1. Appraisal contingency
An appraisal is a valuation of the home being bought. The mortgage lender must be certain that the loan is properly secured by the property. And it will withdraw if that’s not possible.
If the appraisal shows the home to have a market value below the agreed sale price, that can be a problem. If the buyers have sufficient funds, they could top up the down payment to cover the shortfall.
But, more often, buyers walk away. That may be because they lack the cash to make up the difference. Or perhaps they want to pay less for their next home. Of course, a seller can always reduce the sales price to match the appraised value.
For more information, read How to deal with an appraisal gap as a home buyer.
2. Inspection contingency
A home inspection is different from an appraisal. An appraiser is only interested in the market value of a home and may lack the skills to spot defects. A home inspector is trained in construction and related fields and should identify and evaluate issues with the building and its amenities.
Very few homes — even new ones — emerge from inspections with zero defects. The buyer and seller can then negotiate over how to address those.
Sometimes, the seller agrees to carry out the necessary work before closing. Other times, they reduce the price or offer a closing credit to cover some or all the work so the buyer can complete it after closing.
If the two parties can’t reach an agreement, the inspection contingency is triggered and the buyer can walk away from the transaction without any repercussions.
3. Loan contingency
A loan contingency allows buyers to walk away if their financing falls through. In other words, they have a get-out if their mortgage doesn’t proceed as expected.
Typically, sellers prefer to go into escrow with buyers whose income and assets have been thoroughly vetted out. They are more likely to accept an offer from a cash buyer who can fund within days than someone who hasn’t even spoken with a lender yet. That’s because they can be more certain the transaction will reach fruition:
- Cash buyer — No loan contingency
- Preapproved buyer — The lender has conducted an extensive credit and financial background check and agrees in principle to lend up to a specified amount
- Prequalified buyer — The lender hasn’t fully verified the borrower’s financial profile. But it has agreed in principle to a loan up to a specified amount, subject to a credit report pull and review of financial documents
- Everyone else — These are individuals who think they can qualify for a big enough mortgage to buy the home but haven’t engaged a lender yet
Even preapproved buyers can find their financing falling apart if something material changes between the preapproval process and closing. As a result, everyone who isn’t a cash buyer needs a loan contingency in place.
4. Home sale contingency
Home sale contingencies arise when buyers have yet to sell their existing homes. They need the equity from their first home before they can purchase the next one.
Such circumstances are very common. But you can see why sellers prefer cleaner transactions which do not require a buyer to sell a home before purchasing theirs.
In a slow housing market, it could take months or longer for a buyer to sell. And, in a fast one, the seller probably has other offers from those who have already sold.
Time limits are especially common on home sale contingencies. If you’re desperate to buy a home but the seller won’t play ball, consider a bridge loan.
5. No-show contingency
The seller simply agrees not to show the home to other prospective buyers while the agreed sale proceeds on course. In effect, they take the home off the market.
A smart seller may put a time limit on this, partially as a means to motivate both the buyer and the buying agent to keep the deal on track.
As long as both sides agree, any contingency can be written into a purchase agreement. And some fairly common ones protect the seller. These include:
- Home of choice contingency — Sellers can withdraw if they can’t find a home they want to buy
- Rent back contingency — Buyers agree to rent the home to the seller for a specified period after closing, giving the owner more time to move
So, contingencies aren’t all one-sided. They can be used to protect both parties.
Contingent vs. pending: Pending listings
A contingent listing becomes pending when all the contingencies have been either met or waived. And the listing is deemed inactive.
Usually, the transaction will quickly reach closing. However, sometimes, some snag arises that makes the seller nervous. And they might entertain offers in case the current deal falls through.
Pending listings come in a few flavors, the most common of which include:
Pending — taking backups
This is the classic situation where the seller worries about whether the deal will close successfully. So, he or she takes backup offers as a precautionary measure in the event the transaction falls through.
Pending more than 4 months
Even those more complicated real estate transactions shouldn’t take more than four months to close. So, the deal has probably hit a snag.
It may just be that construction on a new home is running long. But it may be more fundamental.
It’s worth noting that the Multiple Listing Service (MLS) in some states automatically updates listings to this status four months after they’re marked pending. Quite often, the real reason the listing is “pending more than four months” is because the selling agent forgot to update it.
Pending — short sale
A short sale occurs when an owner falls behind with mortgage payments. But, instead of foreclosing, the lender agrees that the homeowner can sell the home for less than the amount owed on the mortgage.
Sometimes, it takes the lender a long time to approve the sale, even if it has already agreed on the sum involved. This can become even more time-consuming if there’s a second mortgage, which usually means more than one lender is involved.
Can you make an offer on contingent or pending properties?
Yes, you can make an offer on any home, even if it has a contingent or pending status. However, the seller may not be able to accept it if the transaction is on track for a timely closing.
In those circumstances, the seller may be grateful that you’ve provided them with a backup offer. But your chances of actually getting the home may be limited.
If you see a home you want that’s listed as contingent or pending, ask your buyer’s agent to call the listing agent to get a feel for how the sale’s progressing. If everything’s fine, you may be wasting your time making an offer. And, instead, your agent could ask for a promise that you’ll be first in line to take over if the deal falls through.
But, if the listing agent has concerns about the transaction’s viability, it might be worth making an offer.
As highlighted earlier, it’s not uncommon for listing agents to inadvertently overlook updating listings with a contingent or pending status. And that’s more common than you may think.
So, if you find yourself having missed out on your dream home, have your agent call the listing agent to get a clear and up-to-date picture.
Contingent vs. pending: The bottom line
So, now you know the intricacies of contingent vs. pending. Most of the time, contingent sales proceed to closing in an orderly fashion. And pending sales are even more likely to do so.
However, agreed sales do sometimes fall through. And you shouldn’t lose hope if your dream home is listed as contingent or pending.
Have your buyer’s agent contact the listing agent to get a feel for the likelihood of the deal successfully closing. Depending on the response, there might be an opportunity to submit a backup offer. At the very least, your agent should be able to get an agreement that you’ll be alerted immediately should the transaction get into trouble.
Whether looking at a contingent, pending or ordinary listing, it’s always a good idea to get preapproved for a mortgage before you make an offer.
Indeed, many get preapproved before they even begin house hunting. That way, they know sellers and agents will take their interest seriously. Why not let us help you get preapproved?