Pending or Contingent Home Sales: What’s the Difference?

Pending or contingent home sales

The difference between pending and contingent is that a pending house is under contract. There is an accepted offer, all contingencies have been met and all parties are confident that it is close to completion.

There’s no law stopping you from bidding on a home listed as pending, but that’s only if they accept backup offers (more on those in a moment). If there’s a house you like but it’s on hold, ask your real estate agent if the seller is still accepting offers.

Don’t set your hopes too high, though. A property with pending status is normally much more advanced than a property listed as contingent. Backup offers are not always accepted.

When a home is labeled “contingent,” it means the seller has accepted an offer but is waiting for all contingencies to be met. While some buyers in today’s market are prepared to avoid contingencies (which is a very bad idea), they are the norm in a typical market. Here is a breakdown of common contingencies requested by buyers.

Funding

If a buyer takes out a mortgage on a property, they can apply for a financing contingency that allows them to walk away from the transaction if their financing fails.

For example, if a buyer loses his job shortly after making an offer on a house, a bank is unlikely to lend him any more money. Funding can also get derailed during the underwriting process – when mortgage lenders dig deep into finances to make sure the borrower can repay the loan.

Suppose the underwriters discover an undeclared debt when underwriting. They can refuse the loan application, even if the buyer has been pre-approved. Having a financing contingency in place ensures that a buyer will receive their money if the transaction fails due to financing.

Evaluation

Buyers who take out a mortgage must pay an appraisal of the home before the lender disburses the funds. This is to prevent the lender from lending more than the value of the property.

Let’s say a buyer bids $325,000 for a house, but the appraisal comes in at $275,000. Since the mortgage company can only lend up to fair market value, that leaves a difference of $50,000. If the borrower has $50,000 that they can use to fill the gap, the transaction can proceed. If, however, they don’t have those funds lying around, the valuation contingency gives them a way out – a way to break the deal and keep their money.

Inspection

A home may look perfect on a visit but hide a host of problems. An inspection contingency gives a buyer the option of having their home inspected by a professional. This way, hidden issues can be uncovered and the buyer can either renegotiate the deal with the seller or walk away without penalty.

Title

A title not only indicates who legally owns the property, but also includes any record of liens or judgments made against the property.

Let’s say the previous owner hired a contractor to redo the basement. The contractor has completed its work, but the owner has not made the final payment due for the project. The entrepreneur’s only course of action was to put a lien on the property, which means it cannot be sold without the entrepreneur receiving his salary. A reservation of title allows a homebuyer to opt out of an agreement that is encumbered with liens or judgments.

Door-to-door sale

A final type of contingency is the contingency of a home sale. At one time it was a common occurrence, but today it’s more likely to be a deal-killer.

What he’s saying is basically, “I want to buy your house, but first I have to sell my own property. If I don’t sell my house within a certain time frame, I can opt out of a contract to buy house and leave with my down payment.” Unsurprisingly, most sellers forward offers that include a possible home sale.

Pending Subcategories

Each status – pending and contingent – has subcategories that better tell the story. It is the subcategory in which the status is located that determines whether a potential buyer can make a replacement offer. Here are the subcategories for pending home sales.

Perform backups

This means that the seller accepts backup offers in case the current home sale fails. Sometimes a pending sale allows a buyer to make relief offers but does not allow them to view the home. It is important to check with an agent before deciding whether or not to proceed.

Flash sale

A short sale occurs when a homeowner is in financial difficulty and sells their property for less than the price owed on the mortgage. The original lender receives the sale proceeds and either forgives the difference or seeks judgment against the owner, legally obliging him to pay the difference between the sale prices and the amount owed.

A home listed as a pending short sale means the homeowner is going through the short sale process with the lender. Because it’s listed as pending, it likely means the process is relatively advanced. Still, sellers appreciate a backup offer because of the length of the approval process and the number of things that can go wrong during that time for the original buyer.

no show

This subcategory indicates to a buyer that the seller has accepted an offer, the contingencies have been resolved, and is not accepting any further offers.

More than 4 months

When an ad has been pending for more than four months, the Multiple Listing Service (MLS) automatically sets its status to “pending – more than 4 months”. It could mean one of two things. Either the listing agent forgot to change the status from ‘pending’ to ‘sold’, or the sale is taking longer than usual to materialize. There is little chance that backup offers will be accepted on a property that has been on hold for more than four months.

Contingent Subcategories

Here are the subcategories for conditional home sales.

Continue to display (sometimes listed as CCS)

When a listing is marked as CCS, it likely means an offer has been made, but there are contingencies that must be met first. New offers are actively accepted.

With an exclusion clause

When a property has an opt-out clause, it means the seller can continue to show the house and accept offers during the contingency period. Then, if the seller receives a better offer from a new buyer, he has the right to give the original buyer a specified period of time to remove his contingency or lose the house to the new buyer. Whenever an opt-out clause is part of a real estate contract, it is only intended to favor the seller of the house.

no show

When a seller has received an offer on their home and has decided that they are done showing the house and offering entertaining offers, the property can be marked “contingent — no show”.

Short sale quota

As mentioned, a short sale occurs when a mortgage lender accepts less than is owed on a mortgage and either forgives the rest or goes to court to hold the homeowner liable. When a home is listed as a short sale quota, it means the short sale is moving through the system – a process that can take months. Buyers can usually make a backup bid on a contingent short sale.

Approval

This subcategory relates to a property that is sold through an estate due to the death of the owner.

Make an offer on a pending or contingent home

Let’s say a potential buyer is crazy about a property currently listed as pending or contingent. The first thing they need to do is find out if new offers are being accepted.

Making an offer on a pending home can be tricky. Although a real estate agent may know if a seller is interested in receiving another offer, the sale is far enough along that the odds are not in favor of a new buyer. There is a good chance that the initial sale will materialize.

If a home is listed as conditional, a potential buyer may still be able to place an offer knowing that the seller’s first accepted offer prevails. As long as the contingencies associated with that first transaction are met, whoever made that offer will buy the house. A backup offer only kicks in if the original deal fails.

Given the current state of the market and the fact that an active listing can become pending or conditional within hours, it is important to know what each listing status means. This way, a buyer can determine if a property that has already been foreclosed is worth looking at.

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