How to Understand Contingent Versus Pending in NC Real Estate

Home buyers are often confused by the difference in a home's status listed as "Pending" versus "Contingent." Home buyers are often confused by what a home is marked “Pending” versus when its status is listed as “Contingent.” What is a contingency, and how does it impact the home-buying process in North Carolina? It turns out we do things a little bit differently here, so even if you’re an experienced buyer and seller in other states, there are a few wrinkles in our process that you need to know. 

Pending Versus Contingent: What’s the Difference?

First things first. When we say “contingent” in real estate, we mean a set of conditions that must be fulfilled for a sale to continue. Contingent is often mixed up with “pending,” but they are two separate concepts. 

"Pending” means that a contract is complete for selling a property with no conditions attached and the home is no longer considered an “active” listing. In the Raleigh/Durham area pending listings do not allow any more showings. 

“Contingent” means a contract has been signed and is an agreement to sell the property once all contingencies are satisfied. In our area this has usually nothing to do with selling another home, it’s more focused on home inspection and appraisal. A home will usually be listed as "contingent" during the due diligence period, which in North Carolina is the one "catch-all" period where the buyer must check out everything. There are no separate loan or home inspection contingencies in North Carolina - instead everything must be done within the due diligence period (typically 2-4 weeks).

If a property is contingent, it means that the deal is not entirely complete yet and is technically still an active listing, so you may be able to view the property, and write a backup offer in case the original offer falls through. Writing a backup offer does provide additional leverage to the seller with their current contract, so sometimes it can actually be best to wait and keep an eye on the home to see if it falls out. It depends on the circumstances as to which strategy to take. 

Usually, a contingency falls under one of four categories: appraisal, inspection, financial, and home sale. 

Appraisal: Is the Home Worth the Contract Price?

In a loan transaction, an appraisal is almost always required by the lender to ensure that the money their lending can be backed up by the value of the property. If you are putting 20% down, in a way the lender is buying 80% of your property, so they want to protect their investment. Cash buyers sometimes have appraisals done to check the value as well. 

In a neutral or a buyer's market, often the buyer and seller will renegotiate on the sales price if the appraisal price comes in lower then the contract price. A seller is not required to come down to the appraisal value or "meet halfway", but the buyer could also terminate the contract in North Carolina if they are in the due diligence period. In this scenario, the seller would keep the buyer's due diligence fee. I discuss the two deposits, the due diligence fee and earnest money, below in highlighted sections, but basically know that you can lose some money in this situation.

Home inspection: A General Overview that Checks for Safety Concerns

Many buyers think that a home inspection will uncover everything that needs to be fixed. While this is mostly true, a home inspector's main job is to make sure the property is safe. They are not licensed plumbers or electricians (usually), and are instead trained to provide a general overview of a properties condition while checking anything that could be dangerous. What this means in practice is that the home inspector will alert you to a potential problem, but often a specialist such as a structural engineer, roofer, or HVAC technician will have to provide the final word. 

Home inspectors will check the foundation, roof, HVAC, plumbing, and electrical systems and help you determine the age of these systems. Everything in a house has a lifespan, and it's important to know which items may need attention first. 

One thing to note is that home inspectors cannot see behind walls, so there can be some things hiding. However, if there is something like a leak it will often show up on a ceiling or on the wall.

Finally, home inspectors can recommend other specialists like termite inspectors, radon inspectors, environmental hazard inspectors, etc. They are a great resource.

Financial: Will the Bank Approve You?

Most buyers get pre-approvals from their banks before they start actively looking, which is what I recommend as well. It will help you determine what your monthly cost will be, and give you an idea what price home will fit your needs. A pre-approval is usually enough for a seller to accept your offer. Once your offer is accepted your bank will take a look at everything you've submitted and send it to underwriting for another review, sometimes with other documents that they request. You definitely don't want to take out any new credit cards or loans during the home buying process, as this may affect your credit score and what interest rate or terms you can qualify for.

Home Sale: Carrying More than One Mortgage

Often, buyers need to sell their existing home before they complete the sale on another property. Surprisingly, there is no contingency option on the standardized forms realtors use in the Raleigh/Durham area. So if you want to add a contingency you have to have an attorney draft one up. Instead, the due diligence period is used as a contingency period, meaning you hope to close your current home during due diligence, and otherwise you would terminate the contract and lose your due diligence fee. This is not usually a very good option, so most buyers who have a home to sell either wait until that home is completely closed, or very nearly finished with the process to move forward. There are also options like Ribbon, where a company will buy your next home cash for you for around a 3% fee, and then charge you rent until your current home sells and you can afford the mortgage. This is an expensive option though, as on a $400,000 the costs with this including rent can easily be over $15,000.

One thing to note is that home sale contingencies are not common in seller's markets, since the seller can just wait for a cleaner offer. They are somewhat common in buyer's markets however.

Pending and Contingent in North Carolina - How We’re Different

In 2011, a revised Offer to Purchase and Contract was created and with that, NC real estate had a new concept introduced to the real estate process - "due diligence." 

Where buyers used to offer “earnest money” to sellers to essentially “hold” the house while the buyers acquired financing, home inspections, and appraisals, now there are two “buckets,” and buyers usually add money to both. These are the due diligence fee and earnest money.

In a competitive seller’s market, the amount of due diligence money is much more attractive to sellers than earnest money. In the Raleigh / Durham area this means sometimes the earnest money may be next to nothing while the due diligence amounts are in the thousands! 

This is what makes North Carolina real estate different from other states because all of the contingencies mentioned above fall under the umbrella of the due diligence period; in other words, they must all be satisfied - or not - before the due diligence period ends. Once due diligence ends, buyers cannot back out of the contract without a seller signature, so they are almost always locked in except for issues like last minute title issues.

NC sellers expect their buyers to complete any specified contingencies during due diligence, including home inspection, appraisals, and securing financing. Anything that is turned up in a home inspection can be negotiated, but keep in mind that the buyer will lose the due diligence money if they pull out for something discovered in a home inspection. So sellers have a lot of leverage (North Carolina favors sellers more than buyers in my opinion).

An appraisal gap - where the selling price is not supported by a professional appraisal -  can also open the door to negotiation, but the same thing applies where the buyer will lose the due diligence money if they back out due to a low appraisal. 

Since your due diligence money is at risk, it’s important to walk through the home before buying it. It seems obvious, but with many out of state buyers purchasing site-unseen, it’s worth mentioning. Also, newer homes have less risk than older homes, since the home inspection reports on older homes are usually more lengthy and turn up more problems. 

Sometimes, two to four weeks is tight to get all contingencies satisfied, especially financing. Banks can move at different speeds in processing loans, depending on how many other applications are active at the same time. 

Whether you’re buying or selling, we can walk you through the process and help you navigate all the potential pitfalls. Contact us for a consultation today!