When delving into real estate transactions, you might come across terms like "under contract" and "contingent," often used interchangeably, but they're not quite the same. Let's dive into these terms to understand their nuances and how they differ.
Both "under contract" and "contingent" statuses indicate that a property is not fully available on the market, but they signify different stages in the selling process.
Under Contract
When a property is "under contract," it means an offer has been accepted by the seller, and both parties have signed a purchase agreement. However, the deal is not yet finalized.
At this stage, the property is typically taken off the market, but the contract is still subject to certain conditions, such as a home inspection or appraisal, which could potentially allow the buyer to back out of the deal.
Contingencies in a Contract
Contingencies are clauses in a contract that allow the buyer to cancel the agreement under certain conditions. These are typically related to the property's condition, appraisal value, or the buyer's ability to secure financing.
Common contingencies include home inspection contingencies (allowing the buyer to back out if the home inspection reveals significant issues), appraisal contingencies (protecting the buyer if the property doesn't appraise at the agreed-upon price), and financing contingencies (giving the buyer an out if they can't secure a mortgage).
Pending vs. Under Contract
You might also hear the term "pending" used to describe a property that's under contract. This is often used in the Multiple Listing Service (MLS) to indicate that a property is in the process of being sold, but the deal isn't yet closed.
Pending status usually means that the contingencies in the contract are being worked through, and the deal is expected to close soon, but it's not yet a done deal.
Contingent Status
A "contingent" status, on the other hand, refers specifically to the presence of contingencies in a contract. It doesn't necessarily mean that a property is under contract; it could simply indicate that the seller has agreed to certain conditions before the deal is finalized.
For instance, a property might be listed as "contingent upon the sale of the buyer's current home." In this case, the property is not yet under contract, but the seller has agreed to sell the property only if the buyer can successfully sell their current home.
Contingent vs. Active Contingent
You might also see the term "active contingent" used to describe a property. This typically means that the property is under contract, but the contingencies in the contract are still being worked through.
In contrast, a property that's simply "contingent" might not yet be under contract, but the seller is open to certain conditions before agreeing to a sale.
Contingent vs. Backup Offer
Another related term is "backup offer." This refers to an offer that's been made on a property, but it's not the first or primary offer. The backup offer is only activated if the primary offer falls through due to contingencies.
In this case, the property is not yet under contract with the backup offer, but the seller has agreed to consider this offer if the primary deal doesn't go through.
Understanding the nuances between "under contract" and "contingent" can help you navigate the real estate market more effectively. Whether you're a buyer, seller, or real estate professional, knowing these terms can help you make more informed decisions and better understand the status of a property.