You finally got pre-approved for a home loan by a mortgage lender. You can now officially begin shopping for a home that fits your budget. In addition to working with a realtor, you naturally hop on websites like Zillow to see what’s available in your price point.
There it is, you see it. It’s beautiful. But wait, you notice something. Rather than the home listing saying “For Sale,” it says something else like “Under Contract,” “Contingent” or even, gasp, “Pending.” What does that mean?
Each status indicates a different stage in the home buying process, and comprehending these distinctions can help you make informed decisions. Let’s demystify these terms in an easy-to-understand manner, shedding light on what they mean for both buyers and sellers.
Contingent: A Conditional Agreement
A home listed as “Contingent” means that the seller has accepted an offer from a buyer, but the final sale is subject to certain conditions, or contingencies, that must be met before the deal can proceed. These contingencies are safeguards for the buyer and typically include a:
–Home Inspection Contingency: Allows the buyer to have the property inspected. If significant issues are discovered, the buyer can renegotiate, or withdraw without penalty, or ask for some concessions from the seller.
–Appraisal Contingency: A mortgage lender wants to ensure that the property is valued at a minimum specified amount, just in case the buyer defaults on the loan and they have to re-sell the property to someone else.
Ideally, the appraisal comes in at or above the contract price – the price agreed to between the buyer and seller. If the appraisal comes in low, the buyer has the option to renegotiate or exit the deal.
–Financing Contingency: Gives the buyer time to secure financing. If the buyer cannot obtain a mortgage, they can cancel the contract. Your pre-approval from the bank is solid, right?
This is basically when the underwriter at the mortgage lender/bank combs through your life, asking for a ridiculous amount of paperwork to ensure that you’re legit. It’s annoying but ultimately worth the hassle.
If the lender isn’t satisfied for any reason, the loan will be denied and you can get your earnest money deposit back and cancel the deal.
–Sale of Current Home Contingency: For buyers who need to sell their current home before purchasing a new one, this contingency allows them to back out if they cannot sell within a specified period. This is a weaker offer.
Think about it from a home seller’s perspective. Do I accept the offer from this person who wants to buy my home when they haven’t even sold their own home yet? How long will that take? What if their home doesn’t sell? Is it really worth the risk?
During the contingent phase, listings are still technically on the market. If the contingencies are not met, the deal may fall through, and the property could become available again.
Pending: Moving Closer to Closing
When a home’s status is “Pending,” it signifies that an offer has been accepted and all contingencies have been met or waived. The deal is moving forward, but the sale has not yet been finalized. During this phase, the property is taken off the market and no new offers are accepted.
The pending status covers the period from the successful completion of contingencies to the closing of the sale. It’s a sign that both parties are committed to the transaction, and it’s only a matter of time before the property changes hands, assuming no unforeseen issues arise.
Under Contract: A Broad Term
“Under Contract” is a broader term that can encompass both the Contingent and Pending statuses. It indicates that the seller has accepted an offer, and the property is in the process of being sold, but the sale is not final.
This term is often used interchangeably with “Contingent” and “Pending” but lacks the specificity regarding whether contingencies need to be met.
If you see a property listed as under contract, it’s wise to inquire further about its exact status to understand whether there might still be an opportunity to make an offer.
What This Means for Buyers and Sellers
For Buyers: Understanding these statuses can help you gauge the likelihood of a property becoming available again. A contingent listing may still be worth pursuing, especially if you’re in a competitive market.
However, a pending status indicates that the property is likely on its way to being sold, and it might be better to focus your search elsewhere.
For Sellers: These distinctions highlight the importance of setting realistic contingencies and understanding the buyer’s position. A home that remains in a contingent status for an extended period may deter other potential buyers.
Agents know this and oftentimes will use this as a point of leverage. If an inspection uncovers issues or an appraisal comes in low, the buyer has more leverage because most sellers don’t want to cancel the deal and put their home on the market again. Why not? Because perceptions have now changed.
Why did the deal fall apart? Why is the home still on the market after all this time? Someone else found something wrong with it and backed out, maybe we should be cautious. Maybe offer a lower price in order to protect ourselves. Perception is reality in this world unfortunately.
The journey from listing a home to handing over the keys is filled with various stages, marked by terms like “Contingent,” “Pending,” and “Under Contract.” By understanding these terms, both buyers and sellers can navigate the real estate market more effectively, setting realistic expectations and making informed decisions.
Remember, the real estate process is complex, and these statuses are designed to protect all parties involved, ensuring that the sale moves forward smoothly and transparently. Get a good agent on your side to help ensure your next closing is a smooth and painless one.