Find the home of your dreams moments after it's listed - Not after it's sold!

Making An Offer On A ‘Contingent’ Listing Can Pay Off

Ginny…Every time we look for a house (condo, townhouse or single-family home) and find one we like, by the time we go to make an offer, it’s always been either contingent or pending. Why? And also, what does pending mean? –Javier A, Gallup, NM

Javier…It sounds like what’s frustrating you is really two separate things: (1) not understanding these classifications and (2) the fact that so many of the homes you like appear to be inactive listings for some reason. So, let’s deal with both these issues, in turn…

1. Get up to speed on what the different listing statuses mean. When you are looking at online home listings, “active” status indicates that the property is available for sale. “Pending” status indicates that a buyer’s offer has been accepted and the home is in escrow, meaning that the buyer and seller are both doing what they need to do to ensure that (a) the buyer wants the property and (b) all necessary logistics are in place for the transaction to close. This usually includes, at minimum, the buyer’s inspections, any necessary repairs, appraisals and loan underwriting.

Pending can also describe a short-sale listing that is in contract, where the parties are still waiting to get the green light from the seller’s mortgage servicer(s).

The sellers of a property in “contingent” status have also accepted an offer to buy the home. But with a contingent listing, the contract is contingent upon the buyer’s ability to sell his existing home, i.e., if the buyer doesn’t sell his home, he is able to back out of the contract.

To clarify, most pending listings also include buyer contingencies in the contract, but the contingencies are relatively short loan, appraisal and inspection contingencies. By contrast, when a home is listed in MLS with contingent status, this indicates a rarer, specific contract contingency for the buyer’s sale of his home.

So, what’s the difference between pending and contingent? Well, pending listings generally close escrow or come back on the market as soon as both parties get their inspections, appraisals and green light from the lenders involved. Generally speaking, contracts contingent upon the buyer’s sale of his home do not even go into escrow and inspections; appraisals and underwriting do not begin unless and until the buyer actually does sell his home, however long that takes.

Also, with contingent listings, it is very common for the contract to provide that if the seller receives another offer, she can demand that the buyer move forward with the escrow and remove the contingency for the sale of his home committing himself to buy the listing, even if his home has not actually sold — and that the seller can cancel the contract and move forward with the other offer if the buyer refuses to remove the contingency for the sale of his home.

In short, if you see a contingent listing you really like, you should consider going forward with making an offer on it, which (if the seller likes your offer) will force the first-place buyer to either perform or free the property up for you.

2. “Good” homes move from “active” to “pending” and “contingent” uber-quickly on today’s market. In many areas that have been dealing with a real estate recession for years on end, the market has started to heat up this year, as a result of increased buyer activity and, some say, lenders holding many foreclosed homes off the market entirely.

As a result, buyer demand is outpacing the supply of homes on the market, causing homes to sell quickly, and to sell for prices near or even above the asking price.

What is happening to you is happening to buyers from coast to coast: By the time you see a listing, get out to the property and decide what terms you’d like to offer for it, its status has changed from “active” to “pending” or “contingent”! It can cause no shortage of angst as you see dream home after dream home vanish before your very eyes.

This happens occasionally in every market climate, but is much more commonplace now. As the kids go back to school, some areas see a slight slowdown in the market through the rest of the year, which might cause homes to stay on a bit longer, but as the weather in your area stays relatively warm year-round, the drop-off in activity might not be so steep as it is elsewhere.

3. Take steps to minimize the properties you lose out on. While there is no 100 percent sure-fire way to avoid seeing a home’s status change while you’re trying to follow up on it, there are a few steps you can take to minimize the times you experience this.

Make sure that you get out to see homes that suit your needs as soon as humanly possible, especially if there’s a particular type or neighborhood where you’re finding that homes go pending super swiftly. To do this, don’t just rely on your own Internet house hunt, as some of the Internet listing sites have a couple of days’ delay between the time a home is listed on the multiple listing service and the time they are fed to those sites.

Make sure that you also ask your agent to sign you up to receive automated listing emails directly from her and from the MLS so that you know immediately when a new home that meets your criteria comes on the market.

Also, impress upon your agent that you will make yourself available to go see “good” prospective listings lickety-split, and ask her to help you get into them quickly. And ask your agent to give the listing agents a call before you hop in the car — sometimes it takes listing agents a few hours or longer to change the status on the MLS when a home goes pending, so that it is actually already in contract when you go to view it!

If your agent calls the listing agent and checks the home’s availability with the listing agent directly at the time you make your appointment to see the place, it will help you avoid seeing homes that are already in contract.

Finally, don’t hesitate to make an offer on a place that you’ve seen, can afford and really like. Get educated about the contract and the contingencies you’ll want to put into place, and get your mortgage ducks all in a row (i.e., get preapproved) well in advance so that you know your precise financial boundaries. This way, once you like a home, all you need to do is (a) have your agent let the listing agent know when he can expect your offer (so he waits for it if another one comes in), and (b) review the recent sales of similar homes, to decide on a precise offer price.

Once you’ve done these preparations, when you finally find the “right” one, you’ll be positioned to make an offer soon after it comes on the market, reducing your chances of missing out on yet another property!