On the other hand, you may see a house labeled as “pending.” This tells the marketplace that the contingencies have been met, and the two parties are moving forward with closing. Even in this case, though, nothing is final.
What are contingencies in real estate?
When negotiating the sale of a house or any other property, the buyer or the seller can add a contingency clause to the contract. This protects either party and allows them to back out of the deal safely should a contingency not be met.
In most cases, it’s the buyer who adds a contingency clause. After all, when you put down a large sum of money, you want to make sure you know exactly what you’re paying for. Based on a Realtors® Confidence Index Survey, roughly 7% of contracts signed within three months were terminated. Among those terminated contracts, the top reasons were inspection issues and not being able to secure enough money for a down payment.
By having contingencies in place, you can safely terminate a contract.
Examples of common contingencies include:
- Inspection contingency: the house must undergo an inspection within a certain amount of time.
- Appraisal contingency: the buyer can back out of the contract if the house is appraised for a lower than the agreed-upon price.
- Home-sale contingency: giving the buyer an extended time to sell their current house before having to buy the new one.
However, just because an interested buyer proposes adding a contingency to a contract does not mean the seller has to accept it. The seller can decide it’s too restrictive, or they can add a clause of their own: a kick-out clause.
A kick-out clause means the current buyer has a certain amount of time to remove the contingency and move forward with purchasing the house if another interested buyer shows up. This way, the seller isn’t waiting around for a buyer to tie up loose ends when they could be closing on a house and moving on.
Under contract and active under contract
As well as homes being listed as pending or contingent, you may also see some listed as “under contract” or “active under contract.”
In the case of being under contract, you can consider this to be similar to contingent. Just like we discussed earlier, the seller has accepted a buyer’s offer, but some contingencies need a resolution before the sale can move forward. The next step would be to move up to pending.
For houses listed as active under contract, the seller is taking the “under contract” a bit further. This is letting interested buyers know that they’ve accepted a buyer’s offer on their home but are still open to accepting backup offers. This protects the seller in case the first buyer doesn’t pan out since they now have other options to pivot quickly.
How you can avoid contingencies when selling a house.
Not all houses are in perfect condition and ready to put on the market. There might be water damage, destruction from a tenant, or simply out-of-date interiors. And even when you are in a position to sell, there are a number of reasons why a closing can fall through.
Property owners can skip the hassle of going back and forth with buyers and fielding contingencies by selling to a home-buying company like Meridian Trust. We have years of experience buying homes in all sorts of conditions. With a free consultation, Meridian Trust can quickly examine the property and provide an estimate to help you decide if you’d like to proceed with the sale.
You don’t have to make any changes to your home just for us to buy it. When we purchase houses, we purchase them “as is” and take the burden of fixing them off your shoulders.
For more information about selling your home, call Meridian Trust at (954) 807-9087.
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.
