Active under contract (Contingent) vs Pending: can you still make an offer?

Active under contract (Contingent) vs Pending. Today, learn if you can still make an offer on a house even though it has one of these statuses.

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If you’re looking for a new home these days, I don’t have to tell you that the market is hot. Simply put, there’s more demand for homes than supply. If you combine this with historically low interest rates, it’s a perfect storm of dizzying home prices and bidding wars.  

We recently went through this process ourselves with the purchase of a vacation home in Palm Springs. The Palm Springs market is one of many hot real estate markets in the state of California. In fact, it took us five serious offers before we got a home under contract.

In this market, you need all the help you can get. So imagine the following scenario:

You’ve combed through the MLS listings and you’ve finally found that home of your dreams, but the listing doesn’t say Active anymore. It says says one of these: Active under contract (Contingent) vs Pending.  

Do you still have a chance to buy it?  Can you still place an offer?

The answer is generally Yes for home that are Active under contract or Contingent, and No for homes that are Pending.

To understand why, it’s important to learn what these terms mean.  

Active under contract = contingent

Here’s a photo of a listing from Redfin* that is active under contract, also known as contingent.

*Redfin is a popular real estate websites where you can search for homes online. To find listings that are contingent, you have to toggle this option on in the search filters.

Definition of Active under contract

Here’s Redfin’s definition:  

This means the sellers have accepted an offer on the property, but success may still depend on passing a home inspection or the buyer’s financing approval. It may still be possible to tour these properties and submit a backup offer in case the current one falls through.

In other words: there’s an accepted offer on the home, but the home is still in the contingency period and it might fall out of contract. In this stage, there’s still a chance that you could successfully buy the home.

The official status of this listing shows that Redfin uses these two terms (active under contract and contingent) interchangeably.

What’s in it for the seller?

Why would a seller or listing agent be willing to accept backup offers when their property is “under contract”? It’s because not all active under contract homes make it across the finish line.

A picture is worth a thousand words, so take a look at this listing history:

This shows that this home has already been under contract twice and still isn’t sold.  It fell out of contract twice and came back on the market for another offer.

How often does this happen? About one in ten times.  

A survey of the National Association of Realtors (NAR) from May 2020 estimated that about 9% of contracts didn’t end in a sale.  If this happens, it’s usually because the buyer used a contingency to legally break the purchase contract.

To explain this all a bit more, I want to walk you through a typical home buying process.

How to buy a house: order of events

Here’s a quick summary of what has to happen for you to buy a house:

Once a seller accepts your offer, you both sign the purchase contract, which defines the details of the contract period. You then send over your earnest money deposit within a couple of days of signing the contract. This money is held “in escrow” by the title company, and receipt of this money officially starts the escrow period. This deposit is applied to the balance of the mortgage on the closing date.

Here’s the chronological list of how the listing statuses will change during the contract period:

  • Active
  • Active under contract (AKA Contingent)
  • Pending
  • Sold

What are contingencies?

Basically, contingencies are clauses in a real estate contract that protect the buyer. They define specific conditions by which an interested buyer can walk away from the deal without being in breach of contract.

If you’re like most people, a real estate transaction will be the biggest purchase of your life, so it’s important to have the protection of contingencies.

Here’s a list of common real estate contingencies:

  • Inspection contingency
  • Appraisal contingency
  • Financing contingency
  • Home sale contingency
  • Covid-19 contingency

Let’s talk about these one by one so you can understand why a contingent offer might be withdrawn.

Home inspection contingency

This contingency allows the buyer to perform both a personal and professional inspection of the home.

If you’re only relying on pictures of the house via the MLS (Multiple Listing Service), you run the risk of being really disappointed once you finally set foot into the property. Simply put, pictures can be very deceiving. (Just ask anyone who’s ever used an online dating service!)

A home inspection, therefore, is arguably the most important part of potential buyers’ due diligence. A good home inspector will go over the home with a fine toothed comb and generate a comprehensive report on everything from the water pressure to the roof rafters. The general inspection can be augmented by specialized inspections for the sewer line, foundation, and roof.

Most inspection contingencies will allow you to walk away from the real estate deal if you discover something you don’t like. This important part of the due diligence period can last anywhere from a zero days (no inspection contingency) to a couple of weeks, depending on the details of the contract.

Appraisal contingency

The home appraisal is another essential part of the contingency period. An appraisal is an objective opinion about the value of a property from a licensed professional. The appraiser will take many factors into account.

For a single family home, comparative sales are the biggest determinant of the appraised value. But the appraiser will also consider things like the age and condition of the home, and level of finishes.

Your lender will generally require that the house appraises at the purchase price to approve the full mortgage loan.

Financing contingency

This contingency, also known as a “mortgage contingency,” is yet another important part of the Active under contract period. The financing contingency states that the buyer’s offer is contingent on the ability to get financing from a lender for the mortgage. This protects the home buyer from suddenly having to come up with the entire purchase price in cash if the bank refuses to fund the mortgage.

During this stage, the bank is investigating the “lendability” of the buyer, and the title company is doing a title search to ensure that the sellers legally own the home that they are trying to sell.

Home sale contingency

This is another common contingency, and states that the home purchase is contingent upon the sale of the potential buyers’ current home. This is fairly common, because many people want to use the equity in their current home as a downpayment in the next home.

The home sale contingency introduces a lot of uncertainty to the transaction, though, so it may make your offer seem weaker to the seller.

Covid-19 contingency

This is a new contingency since the pandemic, and allows you to break the purchase contract if you have a job loss related to Covid-19 during the contract period.

Active under contract vs Pending

So to summarize, there are often many contingencies during the Active under contract period. Therefore, there are a lot of ways that a property can fall out of contract.

So it’s fairly common for real estate agents to accept back-up offers, even if a home is Contingent. This way, an experienced real estate agent can have another buyer lined up if the current contingent sale falls through.

So in most cases, you can still submit a backup offer for homes that are under contract.

Pending home sale

It’s when all the contingency periods have lapsed that the home status changes to Pending. In this stage, all of the contingency periods have lapsed, and the buyer is on the hook to buy the home, no matter what. Usually, this time is for the bank to finish up their paperwork or for the sellers to move out. This period finishes when both the buyers and the sellers have signed the closing documents, and the bank has funded the mortgage loan.

At that point, the home changes from “sale pending” to SOLD!

When homes are Pending, no backup offers will be accepted.

Conclusion

So now you know the definition of Active under contract (Contingent) vs Pending. To recap, Active under contract means that a real estate listing has a potential buyer, but contingencies are in place. This real estate term is used interchangeably with Contingent status. You’ve still got a chance to buy this home, as up to 10% of homes fall out of contract during the contingency period.

So if it’s the house of your dreams, don’t give up hope. You’ve still got a chance to buy the home! Ask your real estate agent if the sellers are accepting additional offers, and keep your fingers crossed.

Hopefully this discussion was helpful in your new home search. Happy hunting!

–TDD

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David @ Filled With Money

Wow that is very interesting. I also didn’t know that COVID-19 contingencies exist. I guess COVID is bringing other things than just a new worldwide pandemic for people to have to adjust to. They’re also bringing a whole new set of legal language for people to shift through.

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