As a real estate investor, you will often encounter a myriad of concepts and real estate terms. While most of them are quite intuitive and easy to grasp, certain aspects of real estate investing might be confusing to a beginner. A prime example of this is the distinction between contingent and pending. Knowing the difference between the two is critical when buying an investment property. So what does pending mean in real estate? What does contingent mean in real estate? And why is this distinction important when making a real estate deal? Keep reading as we explore these two concepts and explain the main difference between them.
Definition of Contingent in Real Estate
If you have searched for investment properties in the past, then you have surely come across properties that are marked as contingent. These are properties that have already received an approved offer from a property buyer. However, these properties are still active listings because the contract can be voided if certain provisions are not met. Let’s take a look at some of the most common types of real estate contingencies.
1- Title search
One of the most common contingencies in real estate is the process of checking the property’s title. This is when a real estate investor hires a title company to perform a search in order to make sure that there are no liens on the property. If the search reveals that the title is not clear, the buyer can opt-out of the contract.
2- Home inspection
Much like the title search, real estate investors might request a home inspection to ensure that every aspect of the home is in order. If the inspection reveals any issues, the buyer can request repairs from the property seller.
3- Home appraisal
Another common real estate contingency is a professional home appraisal. This is often done at the behest of mortgage providers who are looking to determine the amount of money they should lend when financing the purchase.
Related: When and Why Do You Need a Home Appraisal?
4- Loan approval
In some cases, the seller approves a real estate offer from a buyer who is yet to get loan approval. Naturally, the purchase agreement becomes void if the buyer is not able to obtain a loan.
If all the aforementioned provisions are met, the status of the income property changes from contingent to pending. Let’s delve into what that entails.
Definition of Pending in Real Estate
As we mentioned above, a property’s status changes to pending once all the contingencies and provisions are met. At this point, the property is no longer an active listing. These deals are only subject to legal processing before they can be finalized. Here is a brief overview of the two most common real estate pending situations.
1- Short sale
Short sales are real estate transactions in which a distressed seller accepts an offer that is lower than the amount he/she owes on the mortgage. These deals can drag out for a while since they’re dependant on the approval of third parties.
2- Taking backups
Backups refer to additional offers that the seller takes in case the initial deal falls through. This usually occurs when some unexpected contingency issues emerge in the final stages of the real estate deal.
Now that you are familiar with the meaning and differences between contingent vs pending status, let’s go over how you should navigate both situations when making an offer.
Making an Offer on a Contingent or Pending Property
At this point, you are probably asking yourself this question: Can you make an offer on a property that is either contingent or pending? The answer is yes. In fact, buyers can submit offers from the moment the listing goes active until the purchase agreement is finalized. Having said that, handling real estate contingent and pending deals is not as straightforward as regular offers. The process requires some experience and familiarity with complex real estate deals. Here is how you should go about making an offer on a contingent or pending property.
Related: How Much to Offer on a House: An Investor’s Guide
1- Retain the services of a real estate agent
The first thing you should consider doing is hiring an experienced real estate agent that can guide you through the process. This is especially important if you are a beginner. In fact, an agent can help you clear a lot of the contingency and legal hurdles that you will invariably face when making an offer. Their input and guidance are invaluable in these situations.
Related: How to Find an Investor Friendly Real Estate Agent
2- Make sure that your offer is enticing
The key to securing this sort of deal is to simply submit an exceptional offer. Sellers are more likely to accept an offer that is vastly superior to the one they initially accepted. Examples of enticing offers include everything from cash purchases to offers with no contingencies. Having said that, you should keep in mind that such offers can be risky and overpriced. Only make one if you’re sure the real estate property will ultimately generate a profit.
3- Reach out to the seller
There are some undeniable personal elements to real estate investing. Deals are more likely to progress smoothly if both parties feel at ease with each other. When looking for investment properties for sale, establishing a rapport with sellers might be a great way to sway them towards accepting your offer. Reaching out to sellers via a personal letter might compel them to get out of negotiations with other buyers and prioritize your offer.
The Bottom Line
Searching for houses for sale is one of the most critical steps of real estate investing. This is why you should extend the scope of your investment property search to include properties that are contingent or pending. Once you have fully grasped these concepts, you will be able to submit compelling offers with confidence. In the meantime, you can start looking for properties right now with the Mashvisor Property Finder! Click here to learn more about this tool.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.