You've found the perfect home and are ready to make an offer. However, before you can submit your bid, you discover that the sale is pending or contingent. What do these terms mean, and how do they affect the homebuying process? Keep reading for a comprehensive breakdown of the difference between pending and contingent offers and when they may arise during a deal.
What Does Pending Mean in Real Estate?
A pending offer means the seller has accepted a bid or a home is under contract, but the sale is not yet finalized. This could happen for several reasons—e.g., a short sale, unfavorable inspection, the buyer is still working to have their financing approved, construction on a new home isn’t complete and it’s not ready for move-in.
While you might still be able to make an offer on a pending sale, there's a high likelihood the deal will still go through. Even if you offer more money or can satisfy any contingencies, the seller can't back out of a pending deal. Instead, your offer will serve as a backup if the current sale falls through.
There are multiple reasons why a home sale may be pending, but it depends on the situation and the parties involved. When making a backup offer, you can see the current pending status. The three most common statuses are short sale, more than four months, and taking backups (among others). Here's a quick overview of each status and what it means.
- Short Sale: A short sale happens when the seller needs to make a deal to avoid foreclosure. However, short sales only happen when the current lender approves of it. So, if the buyer doesn't offer a sufficient amount or the lender doesn't approve the application, the house will go back on the market. However, since it's already at risk of foreclosure, you may encounter a more complicated process to buy the property.
- More Than Four Months: As the name implies, the listing has been pending for at least four months or longer. Typically, this happens when there are issues with the deal, so it's likely that another buyer can come in and buy the house. However, if the problems are with the property itself, it's best to steer clear. In some cases, this can occur simply because the listing agent forgot to change the status from pending to sold.
- Taking Backups: Some sellers like to have options, especially if they think the initial deal might fall through. In this case, the seller may still show the house and accept backup offers. However, if the original offer goes through, the buyer has to accept it.
What Does Contingent Mean in Real Estate?
Contingencies in real estate are requirements that either the seller or the buyer (or both) can set up. Typically, buyers will set up contingencies to help reduce the risk on their offer. For example, with a home inspection contingency, the buyer can withdraw their offer if the property doesn't pass inspection.
Some of the most common contingency statuses include:
- Continue to Show: In this case, the seller continues to show off the property to other prospective buyers. Sometimes, the seller may accept a better offer if one comes along, particularly if it doesn't have as many contingencies.
- No Show: In this instance, the seller chooses not to show the property anymore. Usually, this happens if the seller believes they can satisfy the buyer's contingencies but just hasn't done so yet.
- Kick-Out Clause: Many buyers want to speed up the buying process, so they might include a kick-out clause. This clause provides a deadline for the seller to meet all contingencies. If the seller fails, the buyer withdraws their offer. Deals without a kick-out clause have indefinite deadlines.
- Short Sales: A seller making a short sale is willing to accept less than the market price (usually because of a pending foreclosure). In a contingent deal, a short sale status means the seller has accepted an offer but the deal is still waiting on contingencies.
Common Reasons for Contingency in Real Estate
The main difference between pending and contingent deals is that once contingencies are met, the deal moves to pending status. As we mentioned, many buyers include contingencies with their offer to protect themselves from potential financial ruin. Common contingencies include:
- Home Inspection—A four-point inspection can tell the buyer if there's anything wrong with the home's basic components. So, if an inspection reveals substantial damage, the buyer can back out of the deal, even if the seller accepts the offer.
- Appraisal—This contingency often happens when mortgage lenders are involved in the transaction. The lender doesn't want to pay more than the home is worth, even if the buyer and seller have agreed on a higher price. So, the deal is waiting for a third-party appraisal to verify the mortgage loan amount. If the loan winds up being less than the offer price, the deal may fall through or the buyer has to cover the difference out of pocket.
- Financial/Financing—Most buyers must secure a mortgage loan to purchase a property. This contingent status means the buyer is waiting for approval on a loan. If they can't secure a loan, they can back out of the deal and even get refunded their earnest money deposit.
- First Right—A first right contingency happens when a buyer is trying to sell their current home to buy a new one. In this case, the buyer has the first right to close the deal, contingent on them accepting an offer on their current property. In a seller's market, getting this contingency accepted can be hard.
- Title—A home's title can reveal financial issues like easements or liens against a property. This contingency allows the buyer to back out if any of these problems are discovered after they've made an offer.
- Insurance—Unlike other contingencies, the seller or mortgage lender often requests this option, not the buyer. In this case, the buyer must obtain homeowners insurance before they can finalize the deal. This contingency often comes up during the final phase of homebuying, when money is in an escrow account.
Interpreting Contingent vs. Pending Statuses
When searching for a new home, you may encounter contingent vs. pending statuses. Knowing the difference between pending and contingent can tell you whether you can or should make an offer.
As a general rule, a home with a pending status is likely to close the deal. However, contingent deals may fall through for multiple reasons. Also, if you waive contingencies with your offer, the seller might accept your offer over another.
The Status of a Home Sale Can Reveal Early Red Flags
While knowing contingent vs. pending statuses is helpful, you may want to avoid any property with either of these statuses. Not only is it harder to get your offer accepted and approved, but the status may reveal red flags about the property.
For example, if the deal is waiting on a title contingency, there could be easements on the home, which you'll have to deal with if you buy the title. Similarly, if a deal has been pending for months, there could be a problem with the property.
Realistically, the only reason to make an offer on a home with a contingent or pending status is if you want the property and are willing to jump through hoops to get it. However, if you're looking for an investment property or any home within a specific area, it's much easier to go for available homes that other buyers haven’t put an offer on yet.
Simplify Your Homebuying Experience with a New Construction Home
Buying a pre-owned home can come with many hurdles and obstacles, especially if you're searching in a high-demand market with lots of buyers. One way to alleviate most of these headaches is to purchase a new construction home from a developer. While you likely can't negotiate the price, purchasing a new home often offers a simple first-come-first-served process with a straightforward purchase contract—and you get the benefit of a sales team to guide you and your real estate agent every step of the way. Not only are new construction properties often easier to buy, but they're also a safer investment, thanks to the new materials and lack of maintenance issues.
Century Communities offers a streamlined homebuying process that makes it easy for you to find your best fit and start enjoying your new home as quickly as possible. Ready to find your dream home? Start your search.