Active contingent property is under contract with another buyer, but the final sale of the home is dependent (contingent) on a specific set of criteria that must be met.
If the property falls short of those expectations, the buyer is able to rescind their offer.
If you’re a homebuyer searching for homes online, you may find yourself interested in homes that are labeled “Active contingent,” but what are the specifics regarding that contingency? What does active contingent mean?
There are many different types of contingencies, but here are some of the most common scenarios.
Subject to inspection
If a home is listed as “Active, subject to inspection,” the buyer and seller have signed a purchase agreement (contract), but the buyer is allowed to cancel the deal if the buyer does not like the results of the home inspection. Usually these inspections take place a few days after the purchase agreement is signed. The contingency is removed after the buyer is satisfied with the inspection results.
Sale of another property
If a listing is contingent upon the sale of another property, the buyer and seller have signed a purchase agreement, but the buyer is allowed to cancel if the buyer’s own home does not sell. This may be critical for the buyer, who is protected against having to buy before they have sold their current home. If another offer is received, the seller may call the contingency – which means the contingency needs to be immediately met or the offer is cancelled – and the buyer may lose the deal if they cannot get their home sold within a short period of time. Likewise, a seller may list their home for sale contingent upon finding a new home.
You might also like: How Often Should You Water Your Garden?
Subject to third-party approval
A contingency for third-party approval means the buyer and seller have signed a purchase agreement, but the seller’s lender must approve the sale because the sale proceeds will not be sufficient to pay off the seller’s mortgage loan.
Subject to statutory right of rescission
When the sale of a property is subject to the statutory right of rescission, the buyer and seller have signed a purchase agreement, but the buyer has a limited period of time to cancel the contract under a state law that provides a rescission period. For the purchase of condos, townhomes, or cooperatives, the rescission period allows for the review of additional documents.
According to statutory right of rescission under Minnesota state law, chapter 83, a buyer has an “unconditional right to rescind any contract, agreement, or other evidence of indebtedness, or revoke any offer” within five days of receiving a legible copy of the purchase agreement. A written notice of rescission must be provided to the owner, owner’s agent or lender at the address stated in the contract or agreement.
In addition, Minnesota Statute 515B.4-108 allows the buyer of a condo, townhome or cooperative to cancel the purchase agreement within 10 days of receiving copies of the association’s governing documents. These include the declaration and any amendments, bylaws, articles of incorporation, rules and regulations, disclosure statement or resale disclosure certificate, recent financial statement, current budget and notice of any pending judgments or lawsuits.
Wisconsin has a similar state law regarding statutory right of rescission. Under Wisconsin law, chapter 709, the buyer has the right to cancel a purchase agreement if disclosure documents are not received within 10 days. “A prospective buyer who does not receive a report within the 10 days may, within 2 business days after the end of that 10-day period, rescind the contract of sale” by providing written notice to the owner or owner’s agent.
There are also other contingencies, including those related to financing, that fit into a different category. Ask your Realtor for insights about these types of contingencies and how they could affect your home purchase or sale.
You Might Also Like: Major Loan Types Every Homebuyer Should Know
Pending status
After some of a sale’s contingencies have been removed, the home will be listed as “pending.” A pending property status means that the sale is more imminent, and both the buyers and sellers are marching toward the closing table, usually subject only to a financing contingency, sign-off on the title and a final walk-through of the property.
The following are some frequently asked questions about active contingent status.
Can I tour a home that’s listed as active contingent?
Technically, yes. But not all sellers may be interested in having buyers in their home after they’ve accepted a purchase agreement.
Your REALTOR® can help you weigh the pros and cons of touring a contingent house; they can also help you set up the desired tours.
I’m sick of falling for houses that are contingent. How can I exclude them in my search?
In that case, you want to limit your search to homes with a “For sale” listing status. When searching on edinarealty.com or our mobile search tools, you can filter by status to include or exclude listings that are:
Why would a buyer want to include a contingency in their offer?
Contingencies protect buyers from varying circumstances that are beyond their control and that can cause financial strain.
Buyers who worry about purchasing a “money pit” can feel reassured by an inspection that shows the house is free of major defects and doesn’t require immediate repairs.
Buyers who are submitting an offer contingent on their home sale don’t have to worry that they will be stuck with two mortgages if their current property lags on the market.
If contingencies are advantageous to buyers, why am I hearing about so many homes being sold free and clear of them?
In a low-inventory market, sellers hold the advantage and buyers are competing over a shortage of homes listed for sale. Some buyers who don’t mind taking the risk have made offers that are free and clear of all contingencies as a way to stand out from a crowded field.
Sellers who wish to move may be eager to nix the inspection and all other contingencies, and head straight to closing.
Does a buyer’s contingency ever benefit a seller?
The main benefit to accepting a contingent offer is that it indicates that a sale is in process. The National Association of REALTORS® reports that just 7% of home contracts are canceled after an offer is accepted, and those cancellations can be due to contingencies, financing, the buyer losing a job and more.
In most cases, then, the accepted offer leads to a closed and final sale – the ultimate goal for any home seller.
How can sellers prevent a contingency from tanking their sale?
To prevent against a situation where the contingency tanks the sale, sellers can also entertain “back-up offers.” A back-up offer is exactly what it sounds like – it means the seller can have a second prospective buyer on the hook if the first accepted offer does not go through.
Sellers who wish to go down this path can work with their Realtor to accept a back-up offer addendum that ensures the secondary offer is legally binding and effective immediately, should the initial buyer back out.
