Feb 16, 2025
When buying a home, you may come across the term contingent offer—but what does it actually mean?
In real estate, a contingent offer is when a buyer makes an offer on a home, the seller accepts it, but the sale isn’t final until specific conditions, or contingencies, are met. These conditions protect both the buyer and seller, ensuring the deal moves forward smoothly.
There are three major types of contingencies that most home sales hinge on: home inspection, appraisal, and mortgage approval. Let’s break them down.
A home inspection contingency gives buyers the right to have the home professionally inspected before finalizing the purchase. This clause allows the buyer to:
Skipping this contingency can be risky, as an inspection can uncover hidden problems like mold, faulty wiring, or structural issues. For example, a buyer might ask a seller to fix a few windows, only to later discover mold growing under the frames—something an inspection would have revealed sooner.
An appraisal contingency protects buyers from overpaying for a home. Lenders require an independent appraisal to determine the fair market value of the property. If the appraised value comes in lower than the agreed-upon sale price, the buyer has a few options:
For instance, if a home is selling for $500,000 but appraises at $475,000, the lender will only finance a percentage of the lower amount. If the buyer doesn’t have extra funds to cover the gap, they may need to back out—unless the seller lowers the price.
A mortgage contingency ensures that a buyer can secure financing before committing to the purchase. If the buyer cannot obtain a mortgage within a specified period, they can exit the contract without losing their deposit.While some buyers in competitive markets waive this contingency, doing so can be risky. If the lender delays or denies the loan, the buyer could lose their earnest money deposit and be unable to close on the home. To avoid delays, buyers should seek mortgage pre-approval before making an offer.
Should You Waive Contingencies? In hot real estate markets, some buyers feel pressured to waive contingencies to make their offer more appealing. However, this can be a gamble. While it may help secure a deal, it also removes important protections.
Buyers should carefully weigh the risks before making such a decision.Understanding contingent offers is crucial for navigating the homebuying process. By including the right contingencies in your contract, you can protect your investment and avoid costly surprises down the road.
Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.
