Have you ever searched for real estate on Redfin or Zillow and noticed a red “contingency” sign over the home you searched for? Do you know what that means for you as a buyer? If you are planning on selling, do you know what a contingency offer means to you as a seller?

Let’s take a moment to get a better picture of what a contingency offer actually is and what that means for you.  

What is a Contingency Offer?

A contingency offer is a real estate sales offer that is a written purchase contract to buy a house that includes conditions by which the buyer can nullify the sale. A contingency offer is there to protect both the buyer and seller from unnecessary financial burdens. A contingency offer might be made because the buyer is waiting for finances to come through. For example, a buyer might be waiting for the sale of their current home to close. In a sellers’ market, sellers are more open to accepting contingency offers as it means homes are moving faster.

When a buyer places a contingent offer, they are offering a price they are willing to pay and adding any specific contingencies that accompany the price. The contingencies can be minor or major. Minor contingencies might be waiting for a buyers’ loan approval, or an adequate appraisal to be completed. A major contingency would involve the circumstance in which the buyer sells and closes on their current home.  

Protecting the Seller

A contingency offer also has ways to protect the seller. When a seller accepts a contingent offer, they are taking some risk. In the negotiations, the seller also has the right to counter the offer with price and time frames in which the contingencies must be completed.

For example, a buyer in the process of selling their home is waiting for their finances to come through as they are waiting to close on their current home. They might want to place a contingent offer on their next home so that if something happened to fall through with the selling of their own home, they are not locked in and have the ability to cancel the contract. If the seller knows that their buyer is in this situation, they might request that the closing of their buyers’ house be completed in 30 days or the contact is nullified. This protects the sellers from being stuck in a contract with a buyer who has unforeseen complications. 

The Kick Out Clause

Another way that a contingency offer helps to protect the seller is by including a kick out clause. This is a key part of contingent offers to keep in mind. Included in the contract, sellers can add a “kick out” clause. With a contingent offer, sellers have the right to still show their home and can consider other offers. If another offer comes in, the kick out clause will require the buyers to come up with the finances within 24 – 48 hours. They are to come to agreement without contingencies or they can end the contact. Sellers can also ask the first buyer to raise the price to match their new offer.

So What Does This Mean For You?

As a buyer, if you see a house that you want, but it has a contingent offer, you still have the option to place an additional offer.  As a seller, you can feel more comfortable accepting a contingent offer with the ability to negotiate by adding time frames and by adding the kick out clause.  

Take Away

Depending on your situation, accepting or offering a contingent offer might be a great idea. If you are interested in buying or selling your home and you want more information, especially about contingent offers, please give us a call. We would love to help you in your process.