Contingent and pending are two terms you may come across on your home buying journey. Basically, the terms represent different stages in the home buying process. It’s important to understand the difference between the two, as it may impact which homes you choose to look at. And it can help you avoid getting your heart set on a property that’s already spoken for.
In a nutshell, a home listed as contingent means the seller has accepted an offer, but certain conditions must be met before the sale can officially move to closing. For example, the buyer must qualify for the size mortgage they need to purchase the home or the seller must make certain repairs or updates are made to the property before the buyer takes possession.
A pending status, on the other hand, means the property is already under contract with a committed buyer. The sale is pending, all terms have been defined and the contract work is complete.
While the types of contingency clauses in real estate contracts change with market conditions, here are some of the more common clauses you may come across.
Common Contingency Clauses
Just because an offer has been made doesn’t mean a property is off the market for good. Even though a sale has been initiated, a seller may choose to keep their property on the market but listed as contingent, so back-up buyers can be identified quickly if the original deal falls through.
A financing contingency clause indicates that completion of the contract depends on the buyer’s ability to obtain financing. This protects the buyer from less-than-optimal loan terms, giving them the right to cancel the contract without losing their earnest money.
An appraisal contingency clause protects the buyer from overpaying for an overpriced property. If the appraisal shows the property to be worth less than the purchase price on the contract, the buyer has the right to cancel the contract or renegotiate for a more equitable price.
With a home inspection contingency, the buyer will have the home professionally inspected. If the property requires excessive repairs, the buyer may exit the contract and get their earnest money back.
A title contingency clause protects both the buyer and seller in the event that a title search uncovers liens on the property or inconsistencies in the ownership history.
Common Pending Statuses
Even when a sale is pending and a happy ending is seemingly in sight for buyer, seller, agents and lenders, the status of a deal can vary.
If the sale is pending–taking backups, the home is still on the market and the seller is still showing the home and accepting backup offers.
With a pending short sale, the offer must be approved by the seller’s lender or bank as well as the buyer’s. A short sale can take months to process. By the time the property sale is pending, the seller is most likely not accepting any backup offers.
If a listing has been labeled as pending–more than four months, it means the transaction is taking longer than usual and is still tied up at some point in the sales process.
The good news is that not all pending transactions actually close and are completed. Deals can and do fall through, leaving a chance that the home you wanted may wind up back on the market. The percentage of failed pending transactions varies, ranging from 3% to double digits, depending on market conditions and how selective lenders are being. Your real estate agent can help you determine the right course of action should you have your eye on a home that’s listed as contingent or pending.