If you’re in the market for a new home, you’re likely no stranger to browsing online listing services. During your search, you may come across a listing that’s marked as active contingent. What does active contingent mean and how does it impact the homebuying process? In this guide, we’ll define active contingent and explore common types of contingencies.
What Is Active Contingent Status?
When a real estate listing has an active with contingency status, it means that the seller has accepted a buyer’s offer, but there are certain conditions (known as contingencies) that have not been addressed yet. These contingencies must be resolved before the sale of the property can be finalized.
Other buyers interested in the property may choose to submit a back-up offer in case the contingencies aren’t met and the deal falls through.
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How It Differs from Other Listing Statuses
Every industry has its jargon, including real estate. Active contingent is just one of several statuses buyers might encounter while house hunting.
An active listing, for instance, is currently on the market for sale. Offers on the property may have been submitted, but none have been accepted yet, so buyers have the green light to make an offer.
Under contract is often used interchangeably with active contingent. Both mean that the seller has accepted a buyer’s offer, but the sale still depends on certain circumstances being resolved.
A listing with a pending status is farther along in the transaction process. The key difference between pending and contingent status is that the buyer contingencies have been satisfied when a listing is marked as pending. Alternatively, it could mean a buyer made an offer with no contingencies and the deal is moving toward closing, barring any unexpected issues with an inspection or securing a home loan.
Buyers can make an offer on a property, even if the status is pending, though it’s up to the sellers if they want to continue showing the home.
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Common Types of Active Contingent Scenarios
What does active contingent mean in different scenarios? There are several types of contingencies that can be included when making an offer on a home. Here’s a look at the most common contingencies in real estate transactions.
Home Sale Contingency
A home sale contingency makes an offer on a property conditional on the buyer’s sale of their current home.
There are two types of home sale contingencies that affect active contingent meaning: a sale and settlement contingency and a settlement contingency. With a sale and settlement contingency, the buyer has not yet accepted an offer on their current home. Meanwhile, a settlement contingency involves a buyer with a house under contract, but not yet sold.
According to a National Association of Realtors® study, around 53% of repeat buyers in 2023 used proceeds from their home sale to make a down payment on their new home, meaning buying and selling a house at the same time — and settlement contingencies — are probably quite common.
Financing Contingency
A financing contingency, also known as a mortgage contingency, is just as it sounds: a clause that allows buyers to walk away from a home purchase if they’re unable to secure financing. There’s typically a time frame included with a financing contingency — often 30 to 60 days — that the buyer and seller agree to in the purchase contract.
Either the seller or buyer can exit the agreement during the financing contingency period without penalty, meaning that the buyer can get their deposit back and the seller can accept other offers.
Financing a home purchase isn’t just for first-time homebuyers — around 80% of home buyers used financing in 2023. Getting mortgage preapproval before making an offer on a home can help reduce the risk of not qualifying for financing later on.
Appraisal Contingency
What is active contingent if an appraisal is involved? If a contract has an appraisal contingency in place, the buyer can back out of the deal and get their deposit back if the property doesn’t appraise for the amount they agreed to purchase it for.
Home appraisals are typically required when taking out a mortgage or refinancing to determine the fair market value of a property. If the appraisal comes in lower than the offer, buyers have options to keep the deal alive instead of walking away. Namely, they can renegotiate with the seller or make up the difference in the appraisal gap with a larger down payment.
Inspection Contingency
An inspection contingency gives buyers the option to exit a deal if major defects or structural issues are identified during a home inspection. If making an offer with an inspection contingency, the buyer has a set timeframe (usually 7 days) to hire an inspector. The home inspection cost is paid by the buyer and it may be required by the mortgage lender.
Completing a 4-point inspection provides a review of the property’s major systems, including electrical, HVAC, plumbing, and roofing, and this may be all that a homeowners insurance company requires. But a fuller home inspection might turn up issues a 4-point one would miss so it’s worth getting a full home inspection. Buyers can also hire a specialist to examine any issues identified during an inspection in more detail.
An inspection contingency may include a maximum dollar amount for repairs that allows the buyer to walk away from the contract. If they choose to negotiate instead, there’s typically a timeframe for the seller to make necessary improvements or lower the sales price to match the cost of repairs.
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Implications for Buyers and Sellers
Contingencies carry implications for both buyers and sellers. For sellers, it’s important to review the terms of any contingencies and assess whether it’s likely they can be resolved for the sale to move forward in a timely fashion.
Suppose an offering includes a home sale contingency. Sellers can practice due diligence by checking if the buyer’s home is currently on the market, and if so, what the listing price is and how long it’s been on the market. This information can help decide if the risk associated with the contingency is worth taking.
Contingencies can provide a safety net for buyers to get their deposit back and exit a deal if their mortgage approval or sale of their current home falls through. While limiting contingencies could potentially make an offer more attractive, it’s similarly important for buyers to exercise due diligence in making sure they’re prepared to move forward with a home purchase. This could mean paying repairs out of pocket or taking out a bridge loan to close on a new home before selling a previous residence.
Impact on Real Estate Markets
Homes with active contingent status are still on the market, meaning buyers can request to view a property and make an offer.
Since contingencies pose risk that a deal will fall through, some sellers include a “kick-out” clause in the agreement to increase their chances of getting a better offer. With a kick-out clause, the buyer can accept a noncontingent second offer while the property is still active contingent. In this scenario, the buyer who made the first offer can either remove their contingencies or back out of the deal.
The Takeaway
What does active contingent mean? Put simply, it means a seller has accepted an offer with contingencies that haven’t been met yet. Active contingency meaning varies from deal to deal and may involve a home inspection, securing financing, or a buyer selling their previous home.
It’s important to have your financial ducks in a row if you’re considering an offer on an active contingent property. That way, you’ll be prepared if the initial deal falls through.
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FAQ
Can I make an offer on an active contingent property?
Yes, you can make an offer on a property with active contingent status. This will serve as a backup offer in case the initial deal falls through.
How long does active contingent status typically last?
A property has an active contingent status until all contingencies are resolved, but the window for doing so typically spans 30 to 60 days.
Is an active contingent listing still considered “on the market”?
Yes, an active contingent listing is still on the market, meaning it can be shown to interested buyers and the seller can accept backup offers.
How does active contingent differ from a pending sale?
A pending sale is moving forward to closing, whereas active contingent status means that certain contingencies, such as financing or a home sale by the buyer, haven’t been met yet.
Photo Credit: iStock/deliormanli
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