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What Is An Active Contingent Listing In Real Estate?

July 16, 2024

An active contingent listing in real estate indicates that a property is under contract with certain conditions that must be fulfilled before the sale can be finalized, such as inspections, financing, or the sale of the buyer’s current home.

What Does Active Contingent Mean?

“Active contingent” is a term used in real estate to describe a property that is under contract but still actively being marketed because the sale is contingent on certain conditions being met. These conditions might include the buyer securing financing, the property passing inspections, or the sale of the buyer’s current home. If the contingencies are not met, the contract can fall through, and the property may return to active status. During this period, sellers can often continue to show the property and may accept backup offers.

Option Listing Real estate definition? | Option contract in real estate

An “option listing” in real estate refers to an agreement where a seller grants a potential buyer the exclusive right to purchase a property at a specified price within a certain period. The buyer pays the seller a fee for this option, which is typically non-refundable. If the buyer decides to purchase the property within the agreed timeframe, the transaction proceeds according to the terms outlined in the option contract. If the buyer decides not to proceed, they forfeit the option fee, but they are not obligated to purchase the property.

An “option contract” in real estate is a more specific term referring to the legal agreement itself that outlines the terms of the option listing. It includes:

Option fee: The payment made by the buyer for the exclusive right to purchase the property.
Option period: The timeframe within which the buyer must decide whether to exercise the option to buy the property.
Purchase price: The agreed-upon price at which the buyer can purchase the property if they decide to exercise the option.
Terms and conditions: Any other stipulations related to the purchase, such as contingencies, inspections, or financing.

This type of contract is often used by developers or investors who want to secure the right to purchase a property while they conduct further due diligence or arrange financing.

What Are Common Contingencies During A Home Sale?

Common contingencies during a home sale include:

Financing Contingency: This ensures that the buyer can secure a mortgage to purchase the property. If the buyer is unable to obtain financing, they can back out of the sale without losing their earnest money deposit.
Home Inspection Contingency: This allows the buyer to have the property inspected by a professional to identify any significant issues. If problems are found, the buyer can negotiate repairs, request a price reduction, or withdraw from the sale.
Appraisal Contingency: This protects the buyer by ensuring the property appraises at or above the purchase price. If the appraisal comes in lower than expected, the buyer can renegotiate the price or cancel the contract.
Sale of Current Home Contingency: This allows the buyer to make the purchase contingent on selling their existing home. If the buyer’s home does not sell within a specified timeframe, they can back out of the contract.
Title Contingency: This ensures that the seller can provide clear title to the property. If title issues are discovered, such as liens or disputes, the buyer can withdraw from the sale unless the issues are resolved.
Homeowners Association (HOA) Contingency: This allows the buyer to review the HOA rules, regulations, and financial health. If the buyer finds the HOA terms unacceptable, they can cancel the contract.
Insurance Contingency: This ensures the buyer can obtain adequate homeowners insurance for the property. If the property is deemed uninsurable, the buyer can withdraw from the sale.
Kick-out Clause: This allows the seller to continue marketing the property while the buyer works to meet their contingencies. If a better offer comes in, the original buyer has a specified period to either remove their contingencies or let the property go to the new buyer.

These contingencies protect both the buyer and the seller by ensuring that certain conditions are met before the sale is finalized.

Active Contingent Vs. Sale Pending

“Active Contingent” and “Sale Pending” are both statuses used in real estate transactions to indicate different stages in the selling process:

Active Contingent

Definition: The property is under contract, but the sale is contingent on certain conditions being met.
Marketing: The property is still actively being marketed because the contingencies (such as financing, home inspection, or appraisal) have not yet been fulfilled.
Backup Offers: The seller can typically accept backup offers in case the current deal falls through.
Common Contingencies: These can include the buyer securing financing, the home passing inspections, the buyer selling their current home, and more.

Sale Pending

Definition: The property is under contract, and all contingencies have been satisfied or waived.
Marketing: The property is no longer actively marketed because the sale is moving towards closing.
Backup Offers: While it is less common, some sellers may still accept backup offers, but it is less likely since the deal is more secure at this stage.
Final Steps: The transaction is in the final stages, which typically include completing paperwork, transferring funds, and preparing for closing.

Key Differences

Stage in Process:
- Active Contingent: Early to mid-stage, where contingencies are still being resolved.
- Sale Pending: Later stage, where contingencies have been met and the sale is approaching closure.
Property Marketing:
- Active Contingent: Property remains on the market, and sellers can entertain additional offers.
- Sale Pending: Property is generally not actively marketed anymore, as it is close to closing.
Likelihood of Sale Completion:
- Active Contingent: There’s still a possibility the deal could fall through if contingencies aren’t met.
- Sale Pending: Higher likelihood of sale completion since major hurdles have been cleared.

Understanding these distinctions helps buyers and sellers know the status and likelihood of a property sale’s progression.

Can You Make An Offer On An Active Contingent Property?

Yes, you can make an offer on an active contingent property. Here’s what you need to know about the process:

Making an Offer on an Active Contingent Property

Understanding the Current Contract:
- Contingencies: The current buyer has a contract that is contingent on certain conditions being met. These could include financing, inspections, or the sale of their current home.
- Timelines: Be aware of the timelines for these contingencies, as the property could become available again if the current buyer fails to meet them.
Submitting a Backup Offer:
- Backup Position: Your offer will likely be considered a backup offer, which means it will only come into play if the original contract falls through.
- Negotiation: You can negotiate terms just as you would with any property, including price, contingencies, and closing dates.
- Deposit: Some sellers may require an earnest money deposit to secure your backup position.
Communicating with the Seller:
- Seller’s Agent: Work closely with the seller’s agent to understand the likelihood of the current contract failing and to express your interest and terms.
- Updates: Request updates on the status of the current contingencies to stay informed about your chances.
Flexibility and Patience:
- Be Ready: If the original buyer’s contingencies are not met, be prepared to move quickly to secure the property.
- Stay Flexible: Be willing to adjust your offer based on the seller’s needs and the competitive landscape.

Advantages of Making an Offer

Opportunity: You may have the chance to purchase a desirable property that could soon become available again.
Negotiation Leverage: If the original buyer’s deal falls through, the seller may be more motivated to accept your offer.

Risks and Considerations

Uncertainty: There is no guarantee the original deal will fall through, so you may invest time and effort without securing the property.
Competitive Market: Be prepared for competition from other buyers also interested in the property.

Making an offer on an active contingent property can be a strategic move, particularly in a competitive market. Working closely with a knowledgeable real estate agent can help navigate this process effectively.

How Long Does An Active Contingent Status Last?

The duration of an active contingent status can vary widely depending on the specific contingencies outlined in the purchase agreement and the speed at which those contingencies are resolved. Here are some general timeframes for common contingencies:

Financing Contingency: Typically lasts 30-45 days, depending on how quickly the buyer can secure a mortgage.
Home Inspection Contingency: Usually resolved within 7-14 days, as this is the time frame for scheduling and completing the inspection and negotiating any necessary repairs.
Appraisal Contingency: Often takes 7-21 days, depending on how quickly the appraisal can be scheduled and completed.
Sale of Current Home Contingency: This can vary significantly, potentially lasting anywhere from 30 days to several months, depending on how long it takes the buyer to sell their existing home.
Title Contingency: Generally resolved within 10-14 days, as this involves a title search to ensure there are no issues with the property’s title.

Factors Influencing Duration

Complexity of Contingencies: More complex contingencies, or multiple contingencies, can extend the duration.
Market Conditions: In a competitive market, buyers and sellers may be motivated to resolve contingencies more quickly.
Efficiency of Parties Involved: The responsiveness and efficiency of the buyer, seller, agents, lenders, and inspectors can impact how quickly contingencies are met.

Common Timeframe

In many cases, active contingent status lasts between 30 and 60 days, but this can vary. It’s important for both buyers and sellers to stay in communication with their real estate agents to monitor the status of contingencies and address any issues promptly.

Can I tour a home that’s listed as contingent?

Yes, you can usually tour a home that’s listed as contingent. Here are some considerations and steps to take:

Steps to Tour a Contingent Home

Contact the Seller’s Agent:
- Permission: The first step is to contact the listing agent to get permission to tour the home. Some sellers may allow tours, while others may prefer to limit showings during the contingency period.
- Availability: The listing agent can provide information on the availability of the home for tours and any specific times or conditions for viewing.
Understand the Contingencies:
- Type of Contingency: Knowing the type of contingency (e.g., financing, home sale, inspection) can help you understand the likelihood of the current deal falling through.
- Status: Ask the agent for an update on the status of the contingencies. This can give you an idea of how soon the home might become available again.
Express Your Interest:
- Backup Offer: If you are serious about the property, let the agent know that you are interested in submitting a backup offer. This shows the seller you are ready to step in if the current deal falls through.
- Stay Informed: Request to be kept informed about any changes in the status of the contingencies.

Benefits of Touring a Contingent Home

Preparation: Touring the home allows you to be prepared in case the current contract falls through, giving you a head start.
Informed Decision: Seeing the property in person helps you make a more informed decision about whether to pursue it.
Negotiation Position: Being proactive and ready to make an offer can put you in a strong position if the property becomes available.

Things to Keep in Mind

Respect the Current Contract: Be mindful that the property is under contract, and the current buyers have certain rights. Avoid putting undue pressure on the seller or agent.
Availability: Not all sellers will allow tours during a contingent period, so be prepared for the possibility that a tour may not be possible.
Backup Offers: Be ready to act quickly if the contingencies are not met and the home becomes available. Having your finances and paperwork in order can help you move swiftly.

Touring a contingent home can be a strategic move, especially in competitive markets, allowing you to be ready to make an offer if the opportunity arises.

I’m tired of falling for houses that are contingent. How can I exclude them from my search?

To exclude contingent listings from your home search:

Adjust Filters: On real estate websites or apps, set filters to show only “active” or “for sale” properties.
Notify Your Agent: Inform your real estate agent to exclude contingent listings from the homes they show you.
Custom Searches: Create custom searches or alerts that specifically exclude contingent statuses.

If contingencies are advantageous to buyers, why are some homes sold free and clear of them?

While contingencies provide significant protections and advantages to buyers, some homes are sold without contingencies for several reasons:

Competitive Markets

Higher Offers: In hot real estate markets, buyers often need to make their offers more attractive. Waiving contingencies can make an offer stand out, even if it’s not the highest in terms of price.
Faster Closing: Sellers may prefer offers without contingencies because they can close faster and with less risk of the deal falling through.

Seller’s Market

Seller Leverage: In a seller’s market, where demand exceeds supply, sellers have more leverage and can require offers without contingencies.
Multiple Offers: When multiple offers are on the table, buyers might waive contingencies to increase their chances of winning the bid.

Confidence in Financing and Property

Buyer Confidence: Buyers who are confident in their financing and the condition of the property may choose to waive contingencies.
Pre-Approval: Buyers with strong financial backing or those paying in cash might not need a financing contingency.
Pre-Inspection: Some buyers conduct a pre-inspection before making an offer, allowing them to waive the inspection contingency.

Seller Requirements

As-Is Sales: Some sellers list properties “as-is” and explicitly state that they will not entertain offers with contingencies.
Investor Sales: Properties sold to investors or in foreclosure auctions often require non-contingent offers.

Risk Tolerance

Experienced Buyers: Experienced buyers or investors who understand the risks may feel comfortable waiving contingencies to secure a deal quickly.
Risk Mitigation: Some buyers may have ways to mitigate risks, such as having cash reserves to handle unexpected repairs.

While contingencies provide protections, waiving them can be a strategic move in certain circumstances. Buyers weigh the risks against the benefits, often in response to market conditions or specific property situations.

Why would a buyer want to include a contingency in their offer?

Buyers include contingencies in their offers to protect themselves from potential risks and ensure they can complete the purchase under favorable terms. Here are key reasons why buyers might include contingencies:

Financial Protection: A financing contingency ensures the buyer can secure a mortgage. If financing falls through, the buyer can withdraw without penalty.
Property Condition: A home inspection contingency allows the buyer to inspect the property. If issues are found, they can negotiate repairs or withdraw.
Appraisal Protection: An appraisal contingency ensures the property appraises for at least the purchase price. If not, the buyer can renegotiate or withdraw.
Sale of Current Home: If the buyer needs to sell their current home to finance the new one, a sale contingency allows them time to secure a buyer.
Title Issues: A title contingency ensures the property has clear title. If issues arise (like liens), the buyer can address them or withdraw.
HOA and Insurance: Contingencies may cover review of HOA rules or insurance availability, ensuring terms are acceptable.

Contingencies provide essential safeguards, allowing buyers to proceed with confidence or back out if conditions aren’t met, reducing financial and legal risks.

Does a buyer’s contingency ever benefit a seller?

Yes, a buyer’s contingency can sometimes benefit a seller in certain situations. Here are a few ways this can happen:

Transparency and Trust: Contingencies, such as financing or inspection, can provide transparency about the buyer’s intentions and ability to proceed with the purchase. This transparency can build trust between the buyer and seller.
Negotiation Leverage: Contingencies can provide a basis for negotiation. For example, if a buyer’s inspection reveals minor issues, the seller can choose to address them to keep the deal intact, thereby avoiding potential conflicts post-sale.
Flexible Terms: Contingencies allow buyers to tailor their offers to specific circumstances. For instance, a seller may prefer an offer with a financing contingency over a cash offer if they believe the buyer is highly likely to secure financing.
Market Acceptance: In some markets, offers with standard contingencies are more acceptable and may attract a wider range of potential buyers who are not willing or able to waive these protections.

While contingencies are primarily intended to protect buyers, they can indirectly benefit sellers by fostering smoother negotiations, maintaining transaction integrity, and accommodating different buyer needs and circumstances.

How can sellers prevent a contingency from tanking their sale?

Sellers can take several steps to minimize the risk of a contingency potentially derailing their sale:

Preparation and Disclosure: Provide thorough disclosures upfront regarding the property’s condition, potential issues, and any known defects. This reduces the likelihood of surprises during the inspection phase.
Pre-listing Inspection: Consider conducting a pre-listing inspection. This allows you to identify and address any major issues beforehand, making the property more attractive to buyers and potentially reducing the need for negotiations after an offer is made.
Evaluate Buyer Offers: Assess the strength of each offer, considering factors such as the buyer’s financial qualifications, the amount of earnest money offered, and the terms of the contingency periods.
Encourage Backup Offers: If your property is under contract with contingencies, continue to accept backup offers. This provides a safety net in case the primary contract falls through.
Communicate and Cooperate: Maintain open communication with the buyer’s agent throughout the contingency period. Promptly provide any requested documents or information to facilitate the buyer’s due diligence process.
Negotiate Reasonably: If issues arise during inspections or appraisals, be open to negotiating repairs or adjustments to the sale price. Flexibility can help keep the transaction on track.
Set Realistic Timelines: Ensure that contingency periods are reasonable and aligned with local market norms. This helps avoid unnecessary delays that could lead to buyer frustration.
Monitor Contingency Deadlines: Stay informed about the status of contingencies and ensure that deadlines are being met. Address any potential concerns promptly to keep the transaction moving forward smoothly.

By being proactive, transparent, and responsive throughout the selling process, sellers can minimize the impact of contingencies and increase the likelihood of a successful sale.