What’s The Difference Between a Contingent and Non-Contingent Offer?

“Contingent” or “contingencies” are words that come up often when you’re discussing a real estate transaction. You are probably semi-familiar with these terms if you’ve ever bought or sold a home. Contingencies exist to protect both parties during the transaction, and for a sale to close, specific conditions (or contingencies) must be satisfied. 

The most common contingencies tend to be the following: inspection contingency, financing contingency, appraisal contingency, home sale contingency, and title contingency. These protect a potential buyer from significant risks they face when offering on a property and help preserve the earnest money they put down.

In today’s seller’s market, some buyers might be tempted to offer a non-contingent offer on a home they fall in love with. Competition has been fierce for homes, and buyers are looking for ways to appeal to sellers and avoid bidding wars. But this can be a risky play. So, what is the difference between a contingent and non-contingent offer?

A Non-Contingent Offer

Buyers serious about closing on a home may exercise a non-contingent offer. This means that they are willing to waive some or all contingencies and assume the risk and liability as a result. For sellers, these offers are great because more risk shifts to the buyer. But for buyers, waiving contingencies like the home inspection can possibly lead to unpleasant surprises like structural damage, which without the contingency, they’re unable to renegotiate a credit or repairs for what they’ve uncovered. If they cancel because of what is uncovered they are at risk for losing their deposit. In addition, non-contingent offers do not leave any room for renegotiation, so you have to be sure you are comfortable inheriting a potentially defective property that may need major repairs.

A Contingent Offer

On the flip side, contingent offers shield buyers from any aforementioned pitfalls in the home buying process. For example, many buyers will exercise their right to the financing contingency because even though they are pre-approved for a mortgage, it doesn’t guarantee that they will come up with all of the funds needed to close on a property. And if financing falls through and this contingency is waived, if buyers back out of the transaction, they would lose their earnest money or deposit. 

Your best course of action is to work with an experienced real estate agent when making an offer on a home. They can help guide you and offer their advice and expertise when formulating an offer that is contingent or non-contingent. While non-contingent offers can be a way to stand out amongst other buyers, they also come with some pretty sizable risks. If you’re concerned about standing out in a seller’s market like today’s market, your real estate agent can discuss with you the pros and cons and all options and ideas that help you stand out and have your offer accepted.

I’m a local real estate professional who has decades of experience in the Pasadena area. I am available to assist you in buying or selling a home, so please contact me if you would like to schedule a time to discuss your needs. Take care!