Contingencies are pretty common in real estate. In fact, aside from cash ones, most offers include at least one contingency clause to protect the buyer. Are you currently selling a property? Wondering "Should I accept a contingent offer on my house or investment property?" Here's what you need to know to decide.
What is a contingent offer?
A contingent offer refers to an offer on a house that hinges on certain conditions -- or contingencies. It basically means that the buyer wants to purchase the house, but these conditions will need to be met before they'll finalize the deal.
There are four common types of contingencies you might see in an offer:
1. Mortgage contingency: This says the purchase is reliant on the buyer's ability to get a mortgage loan. If they're unable to secure financing, they can back out of the deal
2. Inspection contingency: The inspection contingency allows the buyer to have the home inspected. Once the inspection is complete, the buyer can either renegotiate or cancel the contract based on its findings.
3. Appraisal contingency: With an appraisal contingency, buyers have the option to break the contract if the home doesn't appraise at the price offered.
4. Home sale contingency: Home sale contingencies are for buyers who are also selling their current property. They allow the buyer to back out of the transaction if they're unable to find a buyer for their home within a certain time period.
Some types of contingent offers are riskier than others. Home sale contingencies, for example, are extremely risky, since they make your sale reliant on the sale of another property (potentially two, if the prospective buyer's buyer has to sell a house, too).
Contingent offers are normally higher in price because the buyer understands that the sellers is taking a risk and hopes that the price compensates for the risk factor.
The drawbacks of contingent offers
Accepting a contingent offer really only has one benefit: You might have a done deal.
But that's a big "might." Contingencies come with real risks, and if you take your home off the market in hopes those conditions will be met, you could find yourself disappointed weeks or months down the line. In that case, you'd have to start over and find another buyer.
This could throw off your own goals (maybe you were trying to buy another property), as well as any deadlines you were trying to meet (investors might need to sell before their hard money loan gets more expensive).
All in all, the drawbacks of accepting a contingent offer include:
• The deal might fall through.
• You might have to renegotiate or accept a lower price.
• It could take longer to sell your home.
• It could cause financial problems or make it hard to buy your next property.
The main point is that contingent offers are risky, and you'll want to seriously consider whether it's right for your situation before signing on that dotted line.
Making your decision
If you're faced with a contingent offer, there are a lot of factors to take into account when making your decision. The first thing to consider is what kind of contingency you're looking at. Other considersations include timing, and where the housing market is.
The bottom line
Contingent offers are risky, but they're actually quite common. Make sure you're ready if one comes along, and know how to protect yourself if you do accept one. Lean on your real estate agent if you need help here; they'll have a good handle on whether contingent offers are smart in your specific situation. 
