Why would a house go from pending to contingent

Congratulations! You’ve accepted an offer on your home. But what does that mean? And how close are you to actually closing? While the vast majority of home sales close smoothly and in a timely manner, it’s a good idea to prepare yourself for the possibility that your home sale could fall through.

What does it mean when a house is pending or contingent?

When your real estate listing goes from “active” to “pending,” it means you’ve accepted an offer, but the sale hasn’t closed yet. (You’ll also hear real estate agents use the phrase “under contract” for this post-offer, pre-close time period, too).

During the time your home is pending, a lot of things happen, including the buyer and seller working together with their real estate agents to clear any contingencies. If you see the word “contingent” on your listing, it means that your buyer is working through any contingencies that were a part of their offer — like a financing contingency, home inspection contingency, or buyer home sale contingency. We’ll talk more about these below.  

How often does a pending sale fall through?

According to Trulia, 3.9 percent of sales failed in 2016, which is an increase over previous years. That means that the vast majority of sales close, but deals can fall apart for many different reasons.

Reasons why pending home sales fall through

Home inspection contingency

Once a potential home buyer finds a home they love, they’ll typically order an inspection of the property to make sure everything is in good working order. A home inspection contingency allows potential buyers to renegotiate the price or walk away because of items of concern found in the inspection report.

Low appraisal

In seller’s markets where there’s limited housing inventory, bidding wars often raise prices beyond home values. This can lead to financing trouble when the pre-closing appraisal report comes back.

A buyer’s lender won’t finance a home for more than the appraised amount, so the buyer will have to pay the difference in cash, the seller will have to come down on price, or the buyer can walk away. 

Buyer remorse

Buying a home is a big decision, and sometimes, potential buyers just change their minds after submitting an offer. They’ll then use one of the contingencies listed below, or another loophole, to cancel their offer.

Keep in mind that almost half of all buyers are first-timers (42 percent, according to the Zillow Group Consumer Housing Trends Report). When faced with one of the biggest financial decisions of their lives, some first-time buyers will simply get cold feet.

Property title issues

Before closing, a buyer’s lender will check to make sure there are no liens for unpaid debts or outstanding financial responsibilities on a property. Major title-related issues can seriously prolong closing — or cause a deal to be canceled overall.

Financing falls through

One of the most common reasons a transaction falls out of escrow is that the buyer’s financing falls through. Typically, if a buyer has been pre-approved, a change in their status, like a difference in employment, new negative credit issue, accrual of additional debts, or a change in lender guidelines can cause the lender to cancel the financing.

You should always check a potential buyer’s financial status before accepting an offer, whether they’re financing or paying cash.

Buyer home sale contingency

In cases where a buyer needs to sell their current home before being able to purchase a new home, they’ll submit an offer with a home sale contingency. This means they can pull their offer if their current home doesn’t sell within a certain time period. And while it may not kill a deal entirely, a buyer home sale contingency can cause your sale to be pending for a very long time.

Carefully select the safest offer

If comparing multiple offers, it’s important to think through the pros and cons of each (your real estate agent can be a big help in this area). Consider prioritizing the offers with the fewest contingencies, and beware of high-dollar offers that might not make it past the appraisal.

Avoid buyer home sale contingencies

Some contingencies are harder than others to work past, and if you accept a buyer sale contingency, there’s not much you can do other than sit and wait for your potential buyer to close on their current home.

Complete a pre-inspection

Avoid big surprises in your buyer’s home inspection report by completing a pre-inspection before listing. Then, you can make any important repairs ahead of time and disclose any structural flaws in advance, bypassing stressful and time-consuming re-negotiations. 

Contingent is a specific status that means a home is under contract, and finalizing the sale depends on completing a few actions. These actions that can make or break the deal are called contingencies.

Before a house can have a contingent listing status, the homeowner must accept the prospective buyer’s offer, which will list the buyer’s contingencies for approval. Common contingencies include:

Contingencies protect buyers from some of the risks associated with buying a home. For instance, if the home inspector finds that significant roof repairs are needed, the buyer can use the home inspection contingency to end the deal without losing their earnest money deposit.

Keep in mind that sellers don’t like to receive an offer with a long list of conditions, especially in a competitive housing market. Instead, you should use contingencies sparingly and only when they make sense for your situation.

If you’re unsure which contingencies you should use, you can discuss your options with a real estate agent or REALTORⓇ. They’ll be able to help you write up your bid while making recommendations on crafting a more competitive offer.

Appraisal Contingencies

An appraisal contingency is common in real estate contracts and allows a home buyer to back out of a deal if the home’s appraisal returns at a lower value than the agreed-upon purchase price.

If an appraisal identifies a lower value, the lender may lower the loan approval or choose to deny the loan. Buyers can appeal for a second appraisal if they think the home is more valuable than originally appraised for, or negotiate a lower sale price with the seller if they still want to buy the home.

Finance Contingencies

Most home buyers finance their property purchase, and mortgage approval isn’t finalized until a few days before closing day. This contingency is a safety net in case a lender doesn’t approve the final mortgage, at which point the buyer can back out of the deal without major penalties.

A lender may decide to reject mortgage approval for any number of reasons, including a low home appraisal or if the buyer’s financial situation has changed since preapproval.

Home Inspection Contingency

No matter how beautiful your dream home is, there can be any number of needed repairs or hidden damage behind drywall or running under the floorboards. Imagine spending hundreds of thousands of dollars on a home, only to move in and find that the roof leaks when it rains and has caused expensive structural damage.

Home inspection contingencies protect home buyers from similar situations by requiring that the home pass professional inspection before the contract can settle. If a home inspector identifies major renovations or repairs, the home buyer can walk away from the purchase, ask for a lower price or negotiate the seller’s responsibility to complete the repairs.

Home Sale Contingency

Buying a home while preparing to sell your current residence can be complicated, so a home sale contingency aims to prevent buyers from paying on two mortgages at once. This clause allows a buyer to end a purchase if their current home doesn’t sell by a specified date. If they secure a buyer and complete their home sale, the new purchase contract moves forward.

Title Contingency

A title search looks through public records to ensure there aren’t unknown liens on the property or additional owners with rights to the property that can affect the purchase. This is important because old debts can become the current owner’s responsibility, and you want to ensure the seller has every right to sell the property to avoid ownership disputes down the road.

If a title search comes back with unpaid property taxes or ownership questions, the buyer can leave the agreement. A title contingency is required by most lenders, and even cash buyers are advised to include this clause in their contract.