Understanding a Contingent Offer
When you are in the process of looking for a house to buy you might notice that many of the houses on the market have a status of “contingent offer.” What does this mean for you as a buyer? Is it still worth looking at the house?
When a house has a contingent offer status it means that the seller has accepted an offer, but the offer has contingencies that have not been met yet.
There are many things that can be included in an offer as a contingency, but there are several common contingencies. These items allow the buyer an option to back out of the deal if the results are not what they wanted. Any issues that are caught as a result of the contingencies allow the buyers to renegotiate the terms of the deal.
Home Inspection
A home inspection contingency is one of the most common contingencies. This allows the buyer to have a home inspector come to their house and look for any potential problems. The inspector will check all of the systems such as HVAC, plumbing, electrical and the foundation. Inspectors will also be able to find problems with leaks, mold and termites.
Once buyers have the results of the inspection they can decide how they want to move forward. They have the option to cancel their offer, change the asking price, or ask the seller to complete some of the work that needs to be completed.
Appraisal
If you are obtaining a loan to purchase your house you will be required to have an appraisal completed. The lender needs to guarantee that their investment into your home is a safe bet. They need to know that should you fail to pay on your loan they will be able to recoup their investment when foreclosing on and selling the house.
That means the house has to appraise for an amount that allows lenders to provide you with the financing. If the appraisal doesn’t come back high enough the buyer will be forced to come up with additional funds or back out of the deal.
Mortgage Approval
Even if the house appraises for the right amount the buyer still needs to qualify for a mortgage. If they are unable to get approval than they will not be able to close the deal. Getting pre-approved at the beginning of your home search is a good way to avoid running into this problem.
Having contingencies included in the offer help to protect a buyer from locking into a deal that they are not able to uphold. It also protects them from buying a house that has problems they did not know about.
If you have found a house that you love that has a contingent offer status, keep your eye on it. You never know when another buyer will run into problems being approved for financing or run into other problems that will cause them to have to back out of the deal. At that time the house will be available again for you to make your offer.