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<\/a>What does active contingent mean?<\/h2>\n
An active contingent listing<\/a> means that the seller has accepted an offer from a buyer, but certain conditions haven\u2019t been met yet. These conditions are known as contingencies, which is where the term “active contingent” comes from.<\/p>\n Many offers contain contingencies. In May 2020, 76% of closed sales<\/a> contained purchase contingencies, a survey from the National Association of Realtors\u00ae (NAR) found.<\/p>\n Contingencies can benefit both the buyers and the sellers, but they tend to benefit buyers slightly more. If a contingency isn\u2019t met, then buyers can back out of a deal without any repercussions and<\/i> they can get their earnest money<\/a> back. Common contingencies include issues with appraisals, home inspections, or the buyer\u2019s home sale.<\/p>\n In other words, the primary deal on an active contingent listing might (maybe) fall through, causing sellers to place their home back on the market \u2014 or accept a backup offer.<\/p>\n \u201cI try to be as upfront with [buyers] as possible and let them know what they’re getting into [with an active contingent listing],\u201d says Warren Barnes<\/a>, a real estate agent based in Fort Wayne<\/a>, Indiana.<\/p>\n Barnes has completed 10% more deals than the average agent in his area. So he knows all the twists and turns that can occur between an accepted offer and a closed sale. He says that he’s seen primary offers fall through due to home inspections and appraisal issues when buyers and sellers cannot come to an agreement on new terms and conditions.<\/p>\n If a property is labeled as pending<\/a> rather than active contingent, that means an offer has been accepted and<\/i> all of the contingencies have either been met or waived. A pending home will be sold and taken off the market as soon as the sale is finalized.<\/p>\n Though a deal on a pending listing is less likely to fall through<\/a> than one on an active contingent listing, it can still happen, and sellers might still be accepting backup offers.<\/p>\n There are several common types of contingencies \u2014 some of which can be waived in order to allow a sale to proceed, and others that cannot. Let\u2019s take a look at a few of the most common ones.<\/p>\n Inspection contingencies<\/a> mean that a buyer can get a home inspected before the deal goes through, and can back out of the purchase with earnest money intact, depending on what the inspector finds.<\/p>\n Inspection contingencies can be waived. Some buyers might consider relinquishing their right to a home inspection in order to close a deal faster. Nineteen percent<\/a> of buyers waived their home inspection contingencies in November 2021, NAR reports.<\/p>\n An appraisal contingency<\/a> allows a buyer to walk away from a sale if after an appraisal is completed if the value of the home is found to be less than the purchase price. This is the most commonly waived contingency, with 21% of buyers<\/a> going without an appraisal, according to NAR data.<\/p>\n However, your mortgage lender will not loan you more money than a house is worth, so if the appraisal determines that the sales price is higher than the home\u2019s actual value, as the buyer, you\u2019ll need to be prepared to come up with the money to make up any difference.<\/p>\n A home sale contingency<\/a> allows buyers a specified amount of time \u2014 usually between 30 and 60 days<\/a> \u2014 to sell their current home. If the home doesn\u2019t sell in that time, buyers can back out of the deal, with their earnest money intact.<\/p>\n In 2021, 51% of buyers<\/a> owned their previous residence, NAR reports. So, home sale contingencies are fairly common.<\/p>\n Settlement contingencies<\/a> are similar to home sale contingencies. In these cases, a buyer already has an offer on their previous home, but they need to make sure the sale closes (or \u201csettles\u201d) in order to buy their new house.<\/p>\n Buyers who purchase their homes using a mortgage typically use financing contingencies<\/a>, which give them time to apply for and receive the loan needed for the deal to go through. And if you can\u2019t get financed for the house, you won\u2019t still be obligated to buy it \u2014 a big benefit!<\/p>\n You\u2019ll likely need this type of contingency even if you\u2019ve been preapproved for a mortgage<\/a> as that process does not guarantee that you\u2019ll get a loan<\/a>. Financing contingencies may also be called loan contingencies.<\/p>\n Buyers can theoretically waive this type of contingency, but it\u2019s ill-advised unless you happen to also have the cash in-hand to buy the house outright.<\/p>\n A title<\/a> is the legal right to own a property. A title search reveals who has owned the home in the past and in the present, and whether there are any recorded liens, claims, or judgments made against the home. Before you purchase a home, your attorney or title company<\/a> will review the home\u2019s title to make sure that it can be legally transferred to you.<\/p>\n Very rarely, there will be issues with the title report that cannot be solved before closing. Most commonly, issues may arise if there\u2019s a dispute over ownership, likely due to family disputes or divorce proceedings<\/a>, or if there are any liens against the property due to debts owed to contractors, unpaid taxes, or bankruptcy.<\/p>\n In these cases, title contingencies<\/a> protect the buyer by allowing them to back out of the sale. Title contingencies cannot be waived.<\/p>\n Most buyers won\u2019t need to worry about zoning contingencies. If you\u2019re buying a residential property and you plan to continue using it as a place to live, there should be no issues.<\/p>\n Still, it\u2019s worth noting that if you want to change the use of your new property \u2014 by turning the first floor into retail or commercial office space, for instance \u2014 you\u2019ll likely need proper approval and permitting that may extend beyond the typical closing period.<\/p>\n Zoning contingencies<\/a> can keep you protected in this situation by preserving your right to back out of the deal if you can\u2019t get the permits lined up.<\/p>\n Sometimes, a bank or a court may need to give their approval before a sale can proceed. Bank contingencies protect buyers in these circumstances and allow them to get their earnest money back if a sale cannot go through.<\/p>\n Bank approvals most often arise in a short sale<\/a> or other distressed property scenario. In a short sale, a seller will sell their home for less than the amount that they owe on their mortgage, and their lender may forgive the remaining debt.<\/p>\n Buyers will likely want a bank approval contingency in this case so that they are protected in case the bank does not approve the sale. Court approvals are also sometimes needed in divorce settlements<\/a> and estate sales.<\/p>\n These types of contingencies cannot be waived.<\/p>\n The short answer is: yes. But even though you can still make an offer on an active contingent listing, it\u2019s important to be realistic.<\/p>\n Though the number varies from year-to-year and month-to-month, Barnes estimates that there is only a 5% to 10% that a primary offer will fall through. Only 9% of the offers<\/a> that contained contingencies in May 2020 were ultimately terminated, NAR reports. Barnes says that this number is likely closer to 5% in markets with low inventory<\/a>.<\/p>\n \u201cIn a market like this when there\u2019s low inventory, and it\u2019s pretty competitive as a buyer, there is a lesser chance that their backup offer is going to get accepted,\u201d Barnes says.<\/p>\n Though contingent deals are unlikely to fall through, it can still happen. There are a number of reasons an active contingent deal may fall through.<\/p>\n The first buyer may not be able to sell their home, or they may be unable to secure financing. In these cases, you might be able to swoop in and get the home of your dreams fairly easily if you\u2019ve already been preapproved for a mortgage or if you don\u2019t have a previous home on the market.<\/p>\n Other cases can be trickier. In some cases, the home inspection<\/a> may reveal some issues that the buyer doesn\u2019t want to deal with or that the seller doesn\u2019t want to repair.<\/p>\n Sometimes the listing will give you a sense of how committed the seller is to the original offer. Here, we dive into four different types of active contingent listings and what they might mean for buyers interested in making a back-up offer.<\/p>\n If a contingent offer has a kick-out clause<\/a>, that means the seller can accept a better offer from a new buyer if one comes along.<\/p>\n Kick-out clauses frequently appear in contracts with home sale contingencies because they allow the seller to back out and give the first buyer their earnest money back if a more enticing offer comes along.<\/p>\n Even with a kick-out clause, sellers will typically go back to the first buyer and give them time (72 hours is typical<\/a>) to respond by improving their original offer. So, even if you have a better offer, a kick-out clause won\u2019t necessarily guarantee that the house will become yours.<\/p>\n A contingent without a kick-out clause, on the other hand, means that the seller can\u2019t just accept a better offer if it emerges. This type of active contingent listing is better for primary buyers as it means a seller can\u2019t just back out of a deal because a better one came along.<\/p>\n If you\u2019re looking at making a backup offer on an active contingent property without a kick-out clause, know that these deals are usually a bit firmer and less likely to fall through.<\/p>\n An active contingent listing with a \u201cto show\u201d clause means that the seller is currently allowing backup buyers to view the property.<\/p>\n This may mean that though the seller has accepted an offer, there are multiple contingencies to address. A seller who is continuing to show their home<\/a> may be on the market for a buyer with fewer stipulations in their offer.<\/p>\n Alternatively, an active contingent listing with a no-show clause means that the seller is not allowing potential backup buyers to view the property.<\/p>\n Sellers with an active contingent offer who are no longer showing the property may feel more confident that their deal will make it to closing and therefore less in need of a backup offer.<\/p>\n If you\u2019re in love with a home that has an active contingent offer, it can\u2019t hurt to pull your best offer together in case the first deal falls through. Barnes shared some tips for buyers on how to put together a winning back-up offer<\/a>.<\/p>\n The more information you have about the primary offer, the more competitive your backup offer will be. One of the first things Barnes recommends buyers considering an offer on an active contingent do is work with their agent to learn as much as they can about the primary offer.<\/p>\n \u201cI recommend my clients have me reach out to the listing agent to get more information on the primary offer and what we can do to present a backup offer that\u2019s going to be better than the one they have on the table,\u201d Barnes says.<\/p>\n Sellers agents might be tight-lipped, but your buyer\u2019s agent should be able to help you figure out how to ask questions that indirectly lead to more information. Asking about kick-out clauses, whether an appraisal has been completed, and other details about the home is fair game.<\/p>\n \u201cThe listing agent is probably going to be holding their cards pretty close to their chest,\u201d Barnes says. \u201cInstead of asking for direct information, you can try to loosen them up by asking for more indirect information.\u201d<\/p>\n Before making a backup offer on an active contingent property, it\u2019s important to ensure that you actually want<\/i> to buy the home. Looking at a home inspection report<\/a> or an updated seller’s disclosure<\/a> (in states that require them) can provide peace of mind.<\/p>\n Barnes says that deals often fall through because the first buyer and the seller can\u2019t come to an agreement about deficiencies found in the home inspection report. If you can get a copy of the report, you might be able to make your backup offer stronger by agreeing to waive an inspection contingency.<\/p>\n Money talks! One of the best ways you can increase the chance of your offer being accepted \u2014 especially if there is a kick-out clause \u2014 is to offer the seller more money.<\/p>\n \u201cAlthough you don’t know what the primary offer is, and what the pricing terms that were accepted, I would say you want to match that or maybe do a little bit better,\u201d Barnes notes.<\/p>\n Instead of asking what amount the primary offer is for, Barnes recommends asking whether the offer is above or below asking price, for instance. That way, buyers can get a sense of what number they need to meet to make a competitive backup offer.<\/p>\nHow is an active contingent listing different from a pending listing?<\/h3>\n
Common types of contingencies<\/h2>\n
Inspection contingencies<\/h3>\n
Appraisal contingencies<\/h3>\n
Home sale contingencies<\/h3>\n
Settlement contingencies<\/h3>\n
Financing contingencies<\/h3>\n
<\/a>Title contingencies<\/h3>\n
Zoning contingencies<\/h3>\n
Bank or court approvals<\/h3>\n
<\/a>Can you still make an offer on an active contingent listing?<\/h2>\n
Why might an active contingent deal fall through?<\/h2>\n
Contingent with a kick-out<\/h3>\n
Contingent without a kick-out<\/h3>\n
Contingent, continue to show<\/h3>\n
Contingent no-show<\/h3>\n
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I recommend my clients have me reach out to the listing agent to get more information on the primary offer and what we can do to present a backup offer that\u2019s going to be better than the one they have on the table.<\/q>\n
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How to make your backup offer successful<\/h2>\n
Learn as much as you can about the current offer<\/h3>\n
Ask for a copy of the home inspection and updated seller\u2019s disclosures<\/h3>\n
Offer a higher purchase price<\/h3>\n