If you're purchasing a home, you may have come across "contingent" and "pending offer." Here, we break down those two options to help you make the best decision for yourself.
Contingent offer
A contingent offer is in limbo and will not be finalized until certain conditions are met. For example, if the seller of your dream house demands an extra $20k on top of the asking price (above your original bid), this would require a contingency before you could buy it- for example, when the house has been repaired or updated to accommodate any specific problems with it. This type of offer is very common and is accepted by many sellers.
Pending offer
On the other hand, a pending offer refers to the real estate agent's agreement to make a good faith effort to sell your home, but it is not yet a final offer.
Difference between these two types of offers
1) A contingent offer means some terms have not yet been agreed upon. A contract can be terminated if these conditions are not met. On the other hand, a pending offer is one in which all required conditions have been met. It is a binding, written contract that must not be confirmed or terminated.
2) A pending offer is always subject to any conditions that may be added later. This might include a mortgage insurance premium or additional closing costs. A contingent offer cannot be modified from its original terms.
3) Deposits: Pending offers often require a down payment of 10% of the purchase price (or more). In contrast, contingent offers generally don't require this upfront payment. However, it's important to note that whichever option you choose, you'll still need to come up with your down payment and closing costs when the time comes.
4) A contingent offer guarantees that you will be able to negotiate the purchase of the home. But it also means that if any issues arise during contract negotiations, such as lack of financing or an inability to resolve a dispute between parties, your offer can be withdrawn completely. On the other hand, a pending offer guarantees that if all conditions in the contract are satisfied by both buyer and seller, then there will not be any major problems in closing the deal.
5) If your offer is contingent, the home may be put up for sale and sold to another buyer if you cannot meet your end of the bargain. However, if you have a pending offer in place, the home cannot be sold to anyone else.
6) When it comes time to close on your home purchase, there will be certain fees associated with that transaction, regardless of whether you have a contingent or pending offer.
Pros and Cons
There are pros and cons to each offer type: contingent offers allow buyers more time to get approval before committing; however, they can give prospective sellers pause since these buyers might back out if their conditions aren't met. Pending offers eliminate this uncertainty. On the other hand, there are a lot of contingencies in pending offers, which can make it harder for buyers to come up with the money needed to close.
Why you might want to consider a contingent or pending offer:
You might be having trouble with your mortgage lender. There may be more back-and-forth emails with your loan officer regarding your purchase (and subsequent refinancing). Some lenders will only agree to refinance once they have seen proof from both the buyer and seller that all conditions have been fulfilled - if this condition hasn't been met, the bank will reject their application. The buyer and or seller may want a contingency. This can be as minimal as having the lawn mowed to a high enough standard, or it could involve extensive renovation work. An unusual circumstance. If you’re buying the first home you'll share with your children, it might make sense to include a condition that requires that the owners only use non-toxic paints and paints in their child's room.
Why you might want to avoid a contingent or pending offer:
The home is already in excellent shape. If, for example, your inspection report reveals no major issues standing in your way of buying the property (i.e., the house is built on a solid foundation and has working plumbing, electricity, etc.), you might want to avoid contingent offers. As a seller, it’s in your best interest to sell your home as quickly as possible before the market potentially shifts.
Our Verdict
It's important to note that your real estate agent can help you determine whether or not this is a beneficial strategy. This isn't a deal-breaker, and you don't have to decide right away. But it is something that you should consider before committing to a purchase.
