April 4, 2015
I receive quite a few questions regarding the Contingent status. The best definition in Webster’s Dictionary for “contingent” is “dependent on or conditioned by something else”. Before I get into contingent status I feel I need to explain what an escrow is. Many states do not use escrow companies, but use attorneys instead. So many people do not know what “escrow” is. An escrow company is set up to safeguard the interests of the parties to a sale. In the old days, you could hand over your deposit to a seller only to find out two weeks later that he had “sold” his property to ten other people and absconded to South America with all their deposits. The escrow company’s job is to hold the Buyer’s funds in an “escrow” account while making sure that all the paper work is in order and all the documents get properly recorded at the state Bureau of Conveyances on the day of “closing”. On the mainland closing may be called “recordation”. This is the day that the title transfers from the seller to the buyer. The escrow company than distributes the funds as the Purchase Contract stipulates. The whole process is called “Escrow”.
Here’s how the sale works. The buyer’s agent helps the buyer draft an offer, which when completed, the buyer signs. The buyer’s agent sends the offer over to the listing agent who presents it to the seller for his consideration. If the seller accepts the offer he also signs it. Once both parties have agreed on the price and terms of a Purchase Contract and signed it, they have consummated the deal. Their agents then take the signed contract to the escrow company and an escrow account is opened. At that point the sellers agent is required by their Multiple Listing Service to change the status of the listing in the MLS data base. The status was “A” for “Active”. At this point there are two choices, “C” for Contingent, and “U” for Under Contract. Here’s where the confusion starts. A contingent offer is also under contract, but with a contingency. That is, there are conditions that must be met before the seller must turn the property over to the buyer. The most common contingency is the home inspection. The buyer is allowed time to fully inspect all aspects of the property. If he finds something he doesn’t like within the allotted time period, he can cancel escrow and get his deposit back. The Purchase Contract is then voided and the property goes “Back On The Market”, and the status is changed back to “A”, active. The process is similar with any other contingency. The next most common contingency if financing. This can last from 30 to 45 days.
The point is, when you see a “Contingent” listing, it’s in escrow, in effect it is sold, but there are contingencies. The only difference is, unlike a listing that has the “U” designation, a “C” listing could come back on the market at a later date. When it does, it will show up in the “Back On The Market” category of the UPdate. But while it is “C” it is not available to purchase. It is possible to make “back-up” offers on contingent listings but back-up offers stay dormant and are voided if the original escrow closes. If, however, a contingency is not met and the present escrow “falls out”, then the back-up offer automatically goes into first place and takes over the previous offers position in escrow. Back-up offers are successful about 10% of the time.