If you’re selling a home in Denver, you’ve probably come across the term “contingent” in conversations with your real estate agent or while reviewing offers from potential buyers. But what does "contingent" mean in real estate, and how can it affect the sale of your home? Understanding how contingencies work is crucial to navigating the home-selling process smoothly, especially in a competitive market like Denver.
In this blog post, the Linkow Baltimore Team, led by Aaron Linkow, will explain everything you need to know about contingencies, how they impact the sale of your home, and what steps you can take to handle them effectively. Whether you're trying to sell your home quickly or attract the best possible offer, this guide will help you make informed decisions.
What Is a Contingency in Real Estate?
A contingency in real estate is a condition that must be met before a sale can be finalized. In other words, when a buyer makes an offer on your home that includes a contingency, it means that the sale is dependent on certain conditions being fulfilled. If the contingency is not met, the buyer has the right to back out of the deal without any penalty.
Contingencies are common in home sale transactions and are designed to protect both buyers and sellers. They allow buyers to ensure that key elements of the sale (such as securing financing or passing a home inspection) are in place before they fully commit. As a seller in Denver, it’s important to understand the different types of contingencies you might encounter and how they can affect the sale of your home.
Common Types of Contingencies in Denver Home Sales
When selling your home in Denver, you’ll likely encounter several types of contingencies in offers from buyers. The most common contingencies include:
1. Financing Contingency
A financing contingency is one of the most common contingencies in real estate transactions. It ensures that the sale is contingent on the buyer securing a mortgage loan. Essentially, the buyer is saying that they need to get approved for a loan to purchase your home, and if they can’t, they have the right to cancel the contract.
For example, even if a buyer has been pre-approved for a mortgage, they may still need to formally apply for and secure the loan after the offer is accepted. A financing contingency protects the buyer if their loan application is denied for any reason, allowing them to back out of the sale without losing their earnest money deposit.
What This Means for Sellers: If your buyer includes a financing contingency, it means the sale could be delayed or fall through if the buyer fails to secure a loan. To minimize this risk, it’s important to work with your real estate agent to review the buyer’s pre-approval and financial situation before accepting an offer.
2. Inspection Contingency
Another common contingency is the home inspection contingency. This allows the buyer to hire a professional inspector to evaluate the condition of your home after the offer has been accepted. If the inspection uncovers significant issues (such as a faulty roof or plumbing problems), the buyer can request repairs, renegotiate the price, or even walk away from the sale.
Inspection contingencies typically come with a deadline by which the inspection must be completed, giving both the buyer and seller time to negotiate any necessary repairs or adjustments to the offer.
What This Means for Sellers: An inspection contingency can lead to requests for repairs or a reduction in the sale price. While you’re not required to make repairs, failing to address significant issues could cause the buyer to back out of the deal. To avoid surprises, it’s often a good idea to conduct a pre-listing inspection before putting your Denver home on the market. This allows you to address any issues upfront and avoid renegotiations later.
3. Appraisal Contingency
If the buyer is obtaining a mortgage, their lender will likely require an appraisal to determine the home’s value. An appraisal contingency ensures that the sale is contingent on the property appraising for at least the agreed-upon purchase price. If the home appraises for less than the purchase price, the buyer can either renegotiate the price or cancel the contract.
For example, if your home is under contract for $500,000 but the appraisal comes in at $475,000, the lender may not be willing to approve a loan for the full purchase price. The buyer can then ask you to lower the price or cover the difference out of pocket.
What This Means for Sellers: Appraisal issues are common in competitive markets like Denver, where offer prices may rise quickly. If your home appraises for less than the agreed-upon price, you may need to be prepared for price renegotiations or face the risk of the sale falling through. Working with an experienced Denver Realtor like Aaron Linkow can help you set a realistic listing price that aligns with market conditions.
4. Home Sale Contingency
A home sale contingency means that the buyer’s offer is contingent on the sale of their current home. In this case, the buyer is saying that they need to sell their own property before they can complete the purchase of your home. This type of contingency is more common in markets where buyers are upgrading or moving to a new area.
For example, if a buyer currently owns a home in a nearby Denver suburb and needs the proceeds from that sale to buy your property, they may include a home sale contingency in their offer.
What This Means for Sellers: Home sale contingencies can add uncertainty to the timeline of your sale. If the buyer’s home doesn’t sell quickly, your sale could be delayed or even canceled. In Denver’s competitive real estate market, sellers often prefer to avoid home sale contingencies because they can slow down the transaction. However, if the buyer’s home is already under contract, this contingency may pose less risk.
How to Handle Contingencies as a Seller in Denver
Contingencies are a normal part of real estate transactions, but they can create uncertainty for sellers. To minimize the impact of contingencies on your home sale, here are a few strategies to consider:
1. Review Offers Carefully
Not all offers are created equal. When evaluating offers on your Denver home, consider more than just the purchase price—look closely at any contingencies that are included. An offer with fewer contingencies may be more attractive, even if the price is slightly lower, because it reduces the chances of delays or complications.
Your Denver Realtor, Aaron Linkow, can help you evaluate the strength of each offer and decide which contingencies you’re willing to accept.
2. Negotiate Contingency Deadlines
Contingencies don’t have to leave you in limbo forever. When negotiating with buyers, you can ask for specific deadlines to be included in the contract. For example, you can require that the buyer’s financing or inspection contingency be resolved within a certain number of days. This ensures that the sale keeps moving forward and prevents unnecessary delays.
3. Offer Preemptive Solutions
If you want to make your home more attractive to buyers and reduce the likelihood of contingency-related issues, consider offering solutions upfront. For example, conducting a pre-listing home inspection and addressing any major issues before listing your home can help avoid inspection-related renegotiations. Additionally, pricing your home accurately based on market data can minimize the risk of appraisal problems.
Contingency Removal: What Happens When Contingencies Are Cleared?
Once all contingencies are satisfied, they are removed from the contract, and the sale can proceed to closing. This means the buyer has secured financing, completed their inspection, and had the home appraised (if applicable). At this point, the sale becomes a more straightforward process, with fewer opportunities for either party to back out.
What If a Contingency Isn’t Met?
If a contingency isn’t met—for example, if the buyer’s financing falls through or the inspection reveals serious issues—the buyer has the option to cancel the contract without penalty. However, in some cases, buyers and sellers can negotiate alternative solutions, such as price reductions or repairs, to keep the sale moving forward.
Final Thoughts: Understanding and Managing Contingencies with the Linkow Baltimore Team
Selling a home in Denver often involves navigating contingencies, but with the right preparation and guidance, you can handle them with confidence. Understanding how contingencies work and knowing how to respond to them can make a big difference in ensuring a smooth and successful transaction.
At the Linkow Baltimore Team, led by Aaron Linkow, we have extensive experience helping Denver homeowners navigate the selling process, including managing contingencies. Whether you’re looking to sell your home quickly or maximize your sale price, we’re here to provide expert guidance every step of the way.
Ready to sell your home in Denver? Contact Aaron Linkow and the Linkow Baltimore Team today to schedule a consultation and learn how we can help you manage contingencies and achieve a successful sale.
