When you look through the home listings, you’ll see a variety of statuses for each home. One of the most commonly misunderstood is the active contingent home status. Is this home available or is it already bought?
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Active Contingent Defined
As the name suggests, the home is still actively listed. But, it is contingent upon a potential sale. In other words, a buyer has bid on the home and even signed a sales contract. But the sales contract has contingencies in it that give the buyer a way out of the contract. In other words, the sale could fall through still.
What Contingencies do Buyers Use?
Buyers can use a variety of contingencies or ways out of the purchase contract. They include:
- Sale of house – If a buyer currently owns a home and he/she needs to sell it to have money to buy the new home, they will use this contingency. This can help a buyer protect their earnest money should they be unable to sell their home in time. This is an important contingency when a buyer knows that they won’t qualify for the mortgage on the new home if they still have the mortgage on their existing home.
- Home financing – Buyers that are unsure about their ability to secure financing may add this contingency. Even buyers that have a pre-approval are able to use this contingency because anything can fall through at the last minute. This contingency gives the buyer until a specific date to clear the conditions on their mortgage. If they don’t they can back out of the purchase contract.
- Inspection – Many home buyers use this contingency as it protects them against buying a faulty home. The buyer usually has a couple of weeks to get the inspection done. They must also review the report within that time to make sure there isn’t anything wrong with the home that they don’t want to deal with or that they would make them want to re-negotiate the sales contract. If the seller won’t re-negotiate the sales contract or the buyer just doesn’t want to take the chance, they can cancel the sale.
- Appraisal – The home must appraise for a specific amount of money in order for the lender to approve the mortgage. In other words, it must be worth at least as the buyer bid on it. If it doesn’t, the bank won’t have enough collateral in the home and the buyer has the right to cancel the sale with this contingency. Some buyers will pay the difference between the appraised value and the purchase price, but most will cancel the sale.
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Active Contingent Differs From Pending
If you see a home that has a pending status, don’t assume it’s the same as active contingent. Pending means that the contingencies have either been satisfied or the contingencies expired. There is a smaller likelihood of the sale falling through when the home is in pending status than you would if it was active contingent.
Should you Bid on an Active Contingent Home?
The bigger question here is if you should bid on an active contingent home. The answer depends on the contingencies on the home.
For example, if it’s contingent on the buyer selling their home and the seller tells you that the buyer doesn’t have any bids on their home and it’s near the expiration date, you may have a good chance. On the other hand, if it’s contingent on the inspection and the buyer already had the inspection completed, your chances of scoring the home are slim.
The more information you can get on the contingencies and their status, the more you’ll know about what to expect. Of course, you are best off bidding on a home that doesn’t have an active bid on it because then you are the frontrunner to buy the home assuming all goes well.
Your real estate agent can help you decide if an active contingent home is worth bidding on or if you should look elsewhere. If anything, don’t make the active contingent home your one and only home you consider. Keep shopping in the event that the current buyer’s contract does go through – you don’t want to have to start back and square one because you hoped that buyer’s sale wouldn’t be done.
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