The term “contingent” in real estate indicates that a contract or sale has been made. However, before finalizing the transaction, certain conditions must be met.

These conditions, called contingencies, are written into the contract to protect buyers and sellers from unforeseen circumstances that could impact the sale. Homes remain in contingent status until these conditions are satisfied.

• According to the National Association of Realtors, nearly 76% of residential sales contracts included contingencies in May 2023.

In real estate, understanding the concept of contingencies is essential. Contingencies are conditions that must be met before a contract or sale can be finalized. These conditions protect buyers and sellers in case unforeseen circumstances affect the transaction.

Anyone involved in a real estate deal must carefully review and understand the contract’s contingencies.

The Meaning of Contingency in Contracts

Contingencies are escape clauses allowing buyers and sellers to back out of an agreement if specific requirements aren’t met. They create a timeline within which buyers must complete necessary inspections, secure financing, and other aspects of due diligence.

Common contingencies usually included in real estate contracts include:

Home Inspection Contingency

A home inspector can assess the home’s condition, and buyers can negotiate repairs as needed. Home inspectors will point out any red flags to potential homebuyers.

Usually, a home inspection contingency in Massachusetts home sales will last up to ten days.

After a home inspection, buyers usually have 24-48 hours to respond to the results. The cost of a home inspection is worth the money to protect a buyer.

Mortgage Contingency

A financing contingency gives the buyer time to secure financing, but changes in the financial situation can affect qualification. Usually, buyers are provided anywhere from 3 to 6 weeks to procure the funding.

It typically depends on the volume of mortgage business that determines the time frame. When a buyer takes longer to get their home loan, a property will stay in contingent status longer.

Appraisal Contingency

The appraisal contingency ensures that the appraised value matches the sale price or is higher. An appraiser will visit the home and look for numerous items to determine market value.

Buyers may need to pay more downpayment upfront or renegotiate if there’s a difference.

In strong seller markets, buyers will often waive appraisal contingencies to make their offers more appealing to sellers.

With bidding wars, there is a more substantial likelihood that a home will not appraise. Real Estate agents call it appraisal gaps.

Title Contingency

Title contingencies are a standard part of a purchase and sale agreement in Massachusetts. Doing a title search reveals any encumbrances or claims regarding the title.

If there are problems found in the title, it is likely the time that a house stays in contingent status will be longer.

If there are any encumbrances against the title, the seller must get them cleared.

Buyers should get title insurance for additional protection.

Home Sale Contingency

Home Sale Contingencies state that the sale will only proceed if a current home sells first. Sellers may reject this in a seller’s market, but bridge loans or later closing dates can offer alternatives.

Suppose you’re interested in buying a house and decide to make an offer. If the seller accepts it, they might label it contingent upon your ability to sell your current home before closing on this purchase.

This contingency allows you time to list your old property for sale before signing on the new one. A home sale contingency is the least common, especially in seller’s markets.

A house sale contingency is a provision that could impact how long a house remains in contingent status the most.

Having these provisions written out explicitly clarifies each party’s responsibilities and roles. It protects them against unexpected events such as appraisals that come out lower than expected, funding challenges, or home sale contingencies.

How Contingencies Work in the Home Buying Process

Contingencies are a vital aspect of the home-buying process. They protect buyers and sellers from adverse consequences of a sale without proper consideration.

For instance, if your buyer’s agent made an offer on your behalf with an inspection contingency stating that you have ten days to inspect the property.

If the inspection report uncovers issues with the property that make it difficult for you to purchase it, you can walk away from the transaction and keep your deposit.

It is essential to understand these contingencies when working through any real estate transaction.

Role of Buyer’s Offer in Contingencies

The buyer’s offer outlines all their requests regarding the transaction and, most importantly, specifies the conditions that must be met for them to purchase it. This process allows buyers to conduct due diligence on their soon-to-be purchase.

A well-crafted offer is crucial as it determines whether a seller will take you seriously and form part of any contract during significant life decisions like purchasing real estate.

Next, we’ll consider how these contingencies impact real estate transactions in Massachusetts.

Impact of Contingencies On Massachusetts Real Estate Transactions

Contingencies are integral to a real estate contract and have far-reaching implications for both parties. Essentially, they are put in place to protect buyers from potential liabilities that could emerge during the buying process.

These contingencies must be met before a sale can go through. Consequently, failing to fulfill them could result in delays or even transaction cancellation.

From the buyer’s perspective, contingencies serve as safety nets. They ensure they aren’t forced to purchase properties with underlying issues like structural damage or title defects.

Home inspections, for instance, provide ample time for buyers to identify any problems with the property. Buyers can request repairs or seller concessions before closing the deal.

Despite their importance to buyers, sellers also use them to mitigate risks associated with selling their property. If a buyer fails to secure financing or has legal complications with the property title, they may have multiple offers waiting on standby.

The two most common types of contingencies you’ll encounter when buying real estate are financing and appraisal contingencies.

Financing and Appraisal Contingency Explained

A financing contingency typically protects buyers who require a mortgage or loan when purchasing a property. It gives them enough time to search for a lender that meets their needs and obtain funding for the property.

The borrower has reasonable time to obtain a loan commitment from an institutional lender, after which they acquire the property.

An appraisal contingency safeguards homebuyers from overpaying for a property by ensuring it’s appraised at or above the agreed-upon sales price. The contract states that if an appraisal comes back lower than expected, either party can withdraw from the deal without losing their earnest money deposit.

To clarify, imagine that financing contingencies are like temporary stop sign holds where the buyer has ample time to gather all the needed financial documents and apply for a loan.

On the other hand, appraisal contingencies are traffic lights that signal red when the value of a home appraisal doesn’t meet the sale price. If there isn’t an adjustment period for a green light with the agreement, the potential buyer can put a brake on the entire process.

These two contingencies are essential. They ensure that each party meets specific required criteria before completing the purchase, protecting both home buyers and sellers’ interests.

Ways to Navigate Contingencies in Massachusetts

Contingencies in a real estate contract are essential protections for buyers. These clauses allow time, usually one to two weeks, for due diligence.

During this time, the buyer can negotiate conditions or even back out of the sale if they find significant issues.

However, contingencies can also delay the process, cause frustration, or lead to higher offer prices due to competition in a seller’s market. The following ways may help you navigate contingencies effectively.

First and foremost, have a trusted and experienced real estate agent who will guide you through the process. They will suggest appropriate contingencies based on market trends and the property’s condition. This way, you won’t miss out on crucial opportunities or make poor decisions that could cost you significant amounts.

Suppose you’re a buyer entering negotiations in a seller’s market where deals move quickly. The demand is high, and you’re unsure how to stand out without adding contingencies.

In that case, your agent might suggest writing an “as-is” offer where you buy the property despite its state. You will accept visible and hidden flaws without any contingency for inspection. However, this strategy comes with added risks and should be cautiously undertaken.

Possible Alternatives to Making an Offer Contingent

The burden of contingencies can fall overwhelmingly onto buyers. It takes time, resources, and energy while reducing your chances of securing your dream home competitively. Therefore, people often consider possible alternatives instead of making an offer conditional.

Imagine you found your dream house but couldn’t bid on it because of an uncertain sale in progress—or risk losing it because another buyer made a non-contingent offer higher than yours.

In this case, several options might help you navigate contingencies better without compromising your chances of closing the deal.

Note that each alternative presents pros and cons depending on your situation, budget, and preferences. Discussing these options with your real estate agent would be best.

It’s important to remember that navigating contingencies requires balancing risks and rewards; every contingency or alternative comes with both benefits and drawbacks. At times, contingencies are necessary to mitigate risk completely, while at other times, they’re more of a hindrance than help in a fast-paced market.

What is The Difference Between Contingent and Pending Sales?

In Massachusetts real estate, sellers commonly use contingent and pending sales to describe properties under contract that are not yet closed.

A contingent sale refers to a property with an accepted offer, but the sale is conditional upon certain conditions being met.

During this contingent period, the seller may continue to show the property to other potential buyers. However, they cannot accept another offer unless the current deal falls through.

On the other hand, a pending sale indicates that all the contingencies have been met. The sale is now in the final stages of completion. The property is no longer actively marketed, and the seller is no longer entertaining other offers.

At this point, the sale is in its final stages, and the closing process is underway.

After closing the sale, the property no longer remains conditional or pending, and the new ownership officially takes over.

Buyers and sellers must understand the difference between contingent and pending sales. Knowing how they differ can help manage expectations and timelines during real estate transactions.

Conclusion

Contingent real estate in Massachusetts is one step from being available to purchase to the closing table. The time a house remains in contingent status can vary from property to property.

Once we remove the agreed-upon contingencies, the sale will move to pending status. Soon, the ownership of the property will change hands as it closes.