A contingent real estate sales offer is a written purchase contract to buy a house that includes contingencies by which the buyer can nullify the sale. Contingencies are fairly common in real estate purchase contracts to protect the buyer and seller from an undesirable financial burden.
When a buyer writes a purchase offer to buy a home, he not only indicates the price he is willing to pay but also any special conditions the seller must agree to when accepting the offer. Typically, these contingencies protect against a purchase that the buyer is unwilling or incapable of completing if the contingent events are not finished. Sellers may counter with contingencies like timeframes in which certain contract items must be met.
Common Buyer Contingencies
Buyer contingencies range from minor, common inclusions to major inclusions that have a higher likelihood of nullifying the sale. An adequate home appraisal and the buyer's ability to obtain financing are very common and typically considered minor contingencies. Lenders often require that a home appraisal meets the purchase price before fulfilling a loan commitment. Financing contingencies are practical as the buyer likely cannot complete the sale without a loan. Typically, seller's want this contingency met within a short period of time. A common major contingency is the sale of the buyer's home. Some buyers shop for a new home before selling their existing home. Sellers may agree to this contingency with a stated time period.
Effect on Negotiations
The effect of contingencies on contract negotiations vary based on current market conditions. In a seller's market, where a large pool of buyers want a relatively small supply of homes, sellers are less likely to accept restrictive contingencies that are risky and restrict continued marketing of the property. When fewer buyers have lots of options, sellers are more likely to accept contingencies to get a contract in place. In general, a clean contract offer without contingencies or one with few contingencies enhances your ability as a buyer to get a low price on a home.
Realtor Ken Parker of Peachtree City, Georgia's New Century Realty Group explained in his April 2007 article "The Truth About Contingency Contracts" that contingency contracts typically have a "kick out" clause. This clause is favorable to sellers as it allows them to continue to consider other offers on the home while a contingency contract is in place. If another interested party makes an accepted offer, the kick-out clause usually indicates that you have 24 or 48 hours to agree to remove contingencies in an amended contract, or exit the contract.
- Thinkstock/Comstock/Getty Images