As a real estate investor, it’s important to always be on the lookout for deals. If you see a property you like that has a contingent listing status, be sure to keep an eye on it. If certain conditions aren’t met, the deal may not go through, and you may be able to buy it.
And if you are currently looking for investment properties, it’s important to understand the difference between homes that are contingent and pending. The two real estate terms don’t mean the same thing and are often confused.
One term could mean you still have a chance to buy a property, while the other term may indicate a sale will soon be finalized. Here are the differences.
What Is Contingent?
A contingent property means an offer to buy has been made, and the seller has accepted it. However, certain contingencies (stipulations) in the contract must be met by either the seller or the buyer before closing. A contingent status property may still be listed for sale, and offers may still be accepted in case the contingencies aren’t met.
Contingencies can protect both the buyer and seller from unexpected circumstances. If certain contingencies in the contract aren’t met, they may allow either party to withdraw from the deal without penalty.
Here are some common contingencies in real estate that may be included in contracts.
Home sale contingency
Some people may need to sell their current homes before they can buy new homes. They may not be able to carry two mortgages at once, and they may also need the money from the sale of one home to help pay for another.
Home sale contingencies are used to make sure buyers don’t get stuck with two homes. A home sale contingency is a stipulation in the home purchase contract where the deal is dependent on the sale of another property. If the property doesn’t sell, the deal falls through.
Home inspection contingency
It’s important to have a home inspection done before the closing when purchasing an investment home to make sure it doesn’t have any issues. A home inspection could reveal termite damage, flood damage, a cracked foundation, or something else.
Home inspection contingencies gives the buyer the right to cancel the contract if the inspection reveals any issues.
Most home buyers rely on financing to pay for their homes. Some buyers, however, may not be able to secure financing due to a poor credit score, a high debt-to-income ratio, or something else.
A mortgage contingency—also known as a financing contingency—indicates that an offer depends on whether the buyer can obtain financing.
Title searches are common when buying and selling real estate to make sure the title is clean. A title search could reveal a lien, an heir, or something else that could hinder the transfer of ownership.
A title contingency allows a buyer to back out of a deal and keep the earnest money deposit if the title search reveals any issues.
Knowing the market value of a home is important for real estate investors. If an investor buys a home to fix and flip and then discovers it is worth less than the sale price, the investment will be a bad deal.
An appraisal contingency allows the buyer to back out of the real estate transaction if the agreed-upon purchase price is higher than the appraisal value.
Common Contingent Listing Statuses
If you are searching for homes, you may see the term contingent used in some listings. When house hunting, a contingent listing may have a different meaning than a contingency in a contract.
Here are several different types of contingent statuses you may encounter while searching for your dream home or investment property.
Contingent: Continue to show (CCS)
If a property is listed as “contingent: continue to show,” it means there is a contract on the property and several contingencies must be fulfilled by the buyer or seller before the closing. Because there is a chance the contingencies in the purchase agreement won’t be met, the property is still being shown, and offers from other prospective buyers will be considered.
Contingent: No show
A property that is listed as “contingent: no show” means the seller is certain that all the contingencies will be met and has decided to no longer show it to potential buyers. The seller will no longer consider additional offers.
Contingent: With or without a kick-out clause
If pending deals are listed as “contingent: with a kick-out clause,” it means that all the contingencies must be fulfilled by a certain date.
If a contingent offer doesn’t have a kick-out clause, it means there isn’t a specific date for the contingencies. This could delay the homebuying process. The seller doesn’t have a hard deadline for the contingencies and could take more time than is reasonable to complete them.
Contingent: Short sale
A short sale is when a home is sold for less than what is owed on the mortgage. In some cases, a short sale may be preferable to a foreclosure for both the homeowner and lender.
If a home is listed as “contingent: short sale,” it means the seller has accepted an offer to sell for less than what is owed on the mortgage.
When people pass away, their estates may go through probate. This is a legal process that involves distributing deceased people’s assets to heirs.
If a home is listed as “contingent: probate,” it means an offer to buy has been accepted by the executor. The sale can’t be completed, however, until it is approved by the court.
What Is Pending?
What does pending mean in real estate? If you see a real estate listing that says the home sale is pending, it means all the contingencies have been met, and the sale will soon be finalized.
Because a pending sale is so close to completion, an additional buyer’s offer may not be accepted, although this is not always the case.
If you see an active listing that is marked as pending, it could mean one of four things.
Pending: Taking backups
Buyers may occasionally breach their contracts for various reasons. When they do, they will likely lose their earnest money deposits, and there may also be legal ramifications. If a contract looks like it may be breached, the seller may accept backup offers in case the buyer’s offer falls through.
Pending: Short sale
As mentioned, a short sale is when a home is sold for less than what is owed on the mortgage. A “pending: short sale” listing means all contingencies have been met, and the lender still needs to sign off on the deal.
Pending: No show
If a listing states that the property is “pending: no show,” it means no more offers are being accepted, and the seller believes the home sale is on track to close soon. When real estate agents see this, they know not to show the property anymore.
Pending: More than four months
What does “pending: more than four months” mean in real estate? It refers to a listing that is taking a long time to close—typically more than four months.
There could be several reasons why the sale has been pending for so long, like a delay in meeting a home sale contingency. An inspection contingency, for example, may have discovered something that needed to be repaired.
A listing that has been pending for more than four months could also be a simple case of forgetfulness. An agent may have forgotten to remove the listing after the home was sold.
How Does an Offer Go From Contingent to Pending?
Generally speaking, a contingent offer becomes pending when all contingencies have been met. If an offer has a financial contingency, for example, the real estate listings will be changed to pending when the buyer obtains a mortgage, assuming there are no other contingencies.
There may sometimes be delays in seeing the listing status changed from contingent to pending. People get busy, and they may also sometimes forget.
If you aren’t sure of a home’s pending or contingent status, a real estate agent can find out for you.
Making an Offer on a Contingent or Pending Listing
Although a home may have a contingent offer or a pending listing status, anyone can still make an offer on it until the closing. If you make an offer on a contingent or pending home, it will be considered a backup offer.
There is no guarantee that you will be able to purchase a home that is contingent or pending. By having a strong offer in place, however, you will be well-positioned in case something happens to the current deal.
Here are some things you can do to strengthen your offer and help you navigate the home-buying process.
Use an experienced real estate agent
An experienced real estate agent may help you obtain additional information about a contingent or pending property. The agent will also help you submit a competitive bid. Although you will have to pay an agent fee, it may be worth it if it’s an investment property with strong potential.
Contact the seller
Many sellers have strong attachments to their homes, and selling can be emotional for them. After working hard to maintain their homes, they would most likely prefer to see them go to buyers who will take care of them as they did.
When presenting an offer on a home that is contingent or pending, you may be able to win the seller over by including a handwritten personal letter. Be sure to introduce yourself and explain why the home means so much to you. A personal connection could help your offer stand out.
It’s understandable if you are excited about a property. If it’s your dream home or it would make an ideal investment property, you may be eager to close on the deal as soon as possible.
If you are making a home purchase offer on a property that is currently contingent or pending, however, it’s important to be patient as the process plays out.
If you are presenting a backup offer, you may have a chance of buying the property if one of the contingencies isn’t met or the buyer fails to close on the deal for some reason. It’s best to be both patient and persistent on these homes in case the contingent offers fall through.
Sweeten the deal
One way your offer can stand out is to sweeten the deal by offering a purchase price that is more than the current offer. You can also make fewer requests from the seller.
Although some contingencies may not be optional, like a financing contingency or other common contingencies, you may consider skipping on asking for furnishings or appliances, being flexible on the move-out date, and paying all the closing costs.
The easier you make things for the seller, the more appealing your offer will be if the current deal falls through.
The Bottom Line
If you are looking for an investment home to fix and flip, rent, or for something else, overlooking properties that are listed as contingent or pending could be a mistake.
Although these properties already have offers that have been accepted, not all of them will make it to the closing. One or more contingencies may not be met, or the buyer may back out of the contract for some reason.
If there’s a property with great investment potential, it doesn’t hurt to put in an offer on it, regardless of the listing status. In a buyer’s market, backup offers are greatly appreciated by sellers. You never know—if your offer is competitive, you may be able to buy the property if the current deal doesn’t go through.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.