Did you know there are over 580 different Multiple Listing Systems (MLS) in America? And each of them has its own database and set of rules. There is no standard. As a prospective buyer, this can be confusing, so it is important to understand the MLS rules in the area you are looking for. One term that is almost universal is Active Contingent.
An Active Contingent Listing is one that has a contract in place, but that contract has contingencies that need to be removed before it can close. Contingencies are conditions of the contract that need to be satisfied in order to move forward. Both the buyer and seller may have contingencies that need to happen, however, it is much more common for the buyer to have them.
Common contingencies in a real estate contract can include:
- Home Inspection Contingency
- Finance Contingency
- Appraisal Contingency
- HOA Contingency
- Title Contingency
- and more…
Just so you know contingent means something needs to happen for the process to continue.
I’ll go over each of these but before I do let’s talk about how listings are displayed when you look at different real estate websites Like Redfin, Realtor.com, and even Zillow
When a person puts a house up for sale they typically hire a real estate agent who is called a listing agent. While a Realtor can both help buyers and sellers, I’ve found that they are distinctly different jobs and it is important to find someone who can represent you fully and has a lot of experience.
This Listing Agent will gather all of the details of the house that is being sold and enter it into the MLS for their market. This is common stuff like bedrooms, bathrooms, and square feet.
But they also take photos, enter things like school districts, and write a description for buyers to read.
There is also some hidden information like the seller’s names, and access instructions for the buyer’s agent to access.
When the home is ready, it is “launched” and gets an Active Status in the MLS.
This allows potential sellers to see the home in person. Usually, you need a buyer’s agent to accompany you, set up the appointment, and “show the house”. Active Listings are homes on the market with no offers.
Buyers then go see the house, and if they like it they can make an offer. This is when the buyers and buyer’s agent write a contract with various terms like sales price, closing date, and other things.
The contract can be written more in favor of the buyer, or the seller, or even neutrally. Depending on the home, and market conditions you will want to evaluate all the different terms in order to win.
Then, after the buyer signs a contract their agent sends it over to the seller’s agent.
The seller’s agent presents the buyer’s offer to the sellers and discusses the different terms in the contract. The sellers can accept reject or counter or even ignore the offer. They can also wait until a better offer comes along.
The house is still active at this point, but as soon as the contract is signed by all parties things change. Things like the purchase price, contingency period (s), and other terms that everyone is on board with.
Once there is an accepted offer and a contract has been signed by everyone the listing status changes.
The agent selling the house is responsible to change the MLS status, and most often the make it AC or Active Contingent.
This is because there will be things in the contract that need to be taken care of by both the buyers and the sellers before our closing can happen.
Contingent deals are where the original buyer doesn’t complete the purchase agreement (contract) then either goes to the backup offer or comes back on the market. The first buyer backs out and new offers could be considered. I think it is wise that potential buyers
Always keep an eye on the pending status to see if this happens.
During active contingent status, the sellers can still show the home if they’d like and they can even take a backup offer if they so choose.
Honestly, is very rare for there not to be a contingent offer on a house. There is usually some condition that needs to be addressed.
Let’s now talk about the different types of contingencies. Most of them will happen during pre-negotiated time frames or milestones. Some states have these, others don’t. It all depends on the purchase contract.
The first contingency that usually comes along is the Inspection Contingency.
This is where the buyers inspect the property and ask for repairs or try to renegotiate the sale price to take into account things that weren’t obvious during the showing. If the house has significant problems the buyers could use this contingency to terminate the contract. Alternatively, the current buyer may get a lower price based on the inspection findings.
If the home is in a Homeowners Association, there will be documents that outline the rules each homeowner must follow.
Every HOA has different rules, but they are all written and recorded at the courthouse to be valid. Sometimes the sellers provide these documents in the multiple listing service, but more often they need to be requested. This takes time, and often buyers don’t know all the things they must agree to because the home is located within the HOA.
If a buyer objects to something in the HOA, they can execute a contingency and end the contract.
There really isn’t much negotiation part around this with the sellers. This is because the seller doesn’t have control of the HOA rules and regulations.
Of course, the new buyers want to own the house free of any liens. The title company or whoever is handling the transfer of title will do a search and make sure there is clear title. If the title shows something the buyers can back out if the sellers don’t resolve it.
Home purchases usually involve a mortgage. This is one of the most common contingency.
There are lots of ways this type of contingency could be activated.
There is buyer approval, property approval, appraisal, and others based on the buyer’s financial situation. Mortgage approval can be one of the most stressful parts for both the buyers and sellers and everyone is relieved when the time period for those contingencies has passed.
This is one of the reasons a cash deal is so powerful – no financing contingency which means there are very few ways to back out.
When you get a home loan
Also called a kick-out clause this is where the seller can accept an offer with contingencies, but then cancel that in favor of a different contract with fewer or none.
Home Sale Contingency
Another contingency I didn’t mention that can affect sellers is when the buyer has to complete the sale of their current home. If the first home doesn’t sell, the buyers cant purchase the other one. This can cause a cascade effect in some instances that affects lots of different people.
If there are no contingencies, or all of them have been lifted (resolved) the house will go to Pending status. Some seller’s agents don’t always make the change, though. This is when the house is usually in the final stages of escrow and the deal is pretty much locked up.
As a potential home buyer, the best to get a house in most markets is to offer a fair price so that both the buyer and the seller of the home can get what they want.
There may be other types of contingencies than the ones listed here – talk with your agent about what is common in your area and market. Also, contingency periods vary – all are negotiable and based on regional and market conditions.
Since everything is in the MLS your agent can search for a contingent home even. This can actually be helpful in a hot real estate market, it might be worthwhile to make backup offers on contingent homes as they could fall through. Contingent listings are an option that could give you a chance to get the home of your dreams.
Remember, there are different rules for different states, and none of this is legal advice. Just a blog post. I hope this post has explained all common reasons for a contingent property. There are a lot of real estate terms covered. It can be confusing so talk with a professional before every real estate transaction.