Contingency
A contingency is a condition written into a real estate purchase contract, such as financing, an appraisal or an inspection, on which the sale depends. The contract says what satisfies each one, by when, and what happens to the deal and the deposit if one is not met.
Active Contingency or Pending: open conditions are the whole difference
Two listings can both be under contract and still carry different statuses in the multiple listing service. The guidelines published by the Southwest Virginia Association of REALTORS separate them on one point: whether any condition is still open.
| Status | What the guidelines say | Conditions |
|---|---|---|
| Active Contingency | Contract has contingencies such as financing, appraisal or home inspection | Still open |
| Pending | The property is currently under contract and pending settlement with no outstanding contingencies | None outstanding |
Read that way, a contingency is the thing that keeps a signed contract from being a sure sale. Financing, appraisal and inspection are the examples the guidelines give. On land the conditions a buyer writes in can reach the ground itself: whether the soil supports a septic system, taken up in whether a buyer can back out if the perc test fails, or on commercial ground the environmental condition of the site, covered in whether a Phase 1 environmental study is needed to sell commercial land.
A condition can also run the other way, toward the buyer's own affairs. An offer that waits on the buyer selling a house raises a timing question of its own, weighed in whether to sell a house before buying land.
Contingency Kickout, where showings continue
The same guidelines define a third status for a contract with a property contingency, where the seller wants to keep the property in front of other buyers. They call it Contingency Kickout, and it reads as a sequence.
Showings continue
The status allows the seller to continue showing the property for sale while the first contract stands.
A second offer arrives
The guidelines say the seller can kick out the initial primary purchase agreement if the seller receives an offer from another buyer that is prepared to perform without a property contingency.
Written notice
The seller notifies the primary buyer in writing of the offer from the buyer prepared to perform.
The first buyer decides
The first buyer is allowed a set amount of time to decide how to proceed.
That is a status definition in a listing service's rules, not a Virginia statute. Whether a seller has a kickout right at all, and how long the first buyer gets to respond, are terms of the contract.
The appraised-value clause written for FHA and VA loans
One condition comes from a federal model clause. On a purchase under HUD/FHA or VA requirements, the model amendatory clause says the purchaser is not obligated to complete the purchase, or to forfeit earnest money, unless the purchaser has been given a written statement, from the Federal Housing Commissioner, the Department of Veterans Affairs or a Direct Endorsement lender, setting the property's appraised value at not less than the contract sales price inserted in the clause.
The clause protects the buyer without trapping the buyer. It adds this:
The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation.
HUD model amendatory clause
The clause also keeps the government out of the question of what the property is worth: "HUD does not warrant the value or condition of the property." What a seller and buyer do when the lender's appraisal falls short of the price is the subject of what happens if the buyer's appraisal comes in low, and the dollar difference itself has its own entry, appraisal gap.
How each condition lines up with the deposit, from ratification through to settlement, is followed in order in earnest money and contingencies.
Deciding which conditions to write into an offer on land?
Send the parcel and what the purchase has to wait on, and Lowell will pull what the county record already shows about that ground, so the conditions you and your attorney write start from the record. No cost, no obligation.
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Questions about this term
Are financing, appraisal and inspection the only contingencies a contract can carry?
No. The SWVAR MLS guidelines describe Active Contingency as a contract with contingencies "such as" financing, appraisal or home inspection, so those three are examples rather than a closed list. A land purchase can wait on other things, such as a perc test result. Which conditions a particular contract carries, and the deadline attached to each, are that contract's terms, read by an attorney.
Is an FHA or VA buyer forced to walk away if the appraised value is below the price?
No. The HUD model amendatory clause says the purchaser is not obligated to complete the purchase or forfeit earnest money unless given a written statement of an appraised value not less than the contract price inserted in the clause, but it also gives the purchaser the option of proceeding without regard to the appraised valuation. HUD does not warrant the property's value or condition.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- MLS guidelines (2024 edition): Active Contingency, Pending and Contingency Kickout status definitions Southwest Virginia Association of REALTORS
- Model amendatory clause for HUD/FHA and VA purchase contracts U.S. Department of Housing and Urban Development