What You Should Know About Contingent Offers for Buying and Selling

July 31, 2019 by Jorge Lopez

Real estate sales staff give the artificial home to customers.
When it’s time to say goodbye to your beloved home, a lot can go into getting it ready to sell. You’ll have to visit the bank, find a good Realtor, make minor updates, and be ready for showings at any time.

Also, you have to find somewhere new to live. You’ve likely built some equity into your current home, which can be used toward a down payment on the new place if you can sell it before closing on the place you want to live next.

This is known as a contingent offer, and you should understand what it entails before making or accepting one.

Contingent Offer Overview

A contingent offer is when you make an offer on a house, but with a catch: You tell the seller of the new home that you’ll buy it only if the house you currently own sells.

It’s a fine option for current homeowners because it prevents them from being locked into a contract they can’t otherwise afford. Typically, there are two types of contingency offers: the sale and the settlement offer.

A sale contingency occurs when a prospective buyer finds an attractive structure for sale, but he or she doesn’t have a sale contract on the current property. A settlement offer occurs when there’s a sale contract on the new home, but it’s not finalized, so the buyer must wait until his or her current residence sells to finalize an offer to purchase the new one.

Both entail risks, though the second is a little less risky. All contracts are valid, but there’s a clear “out” for both buyers and sellers written into the deal so nobody’s tied to a home purchase he or she cannot afford.

Ways to Break the Contingency Contract

A contingent contract can be attractive to both buyers and sellers because it’s relatively easy to break. There may be a contract addendum called the “kick-out” clause, which says the sellers have a specified amount of time (usually 48 to 72 hours) in which they can get out of the contingent contract and accept a better offer.

Usually, with the cancellation of the contract, the seller must refund the buyer’s earnest money. In most contingent offers, there will be a time frame for the buyers to sell their old home.

Usually, they’re given between 30 and 90 days to accept an offer and put the home under contract. If this does not occur during the specified time, the offer is voided.

There’s also something called the “first right of refusal.” This is a protection for the buyer, which gives him or her the first right to buy the property before the seller may negotiate another offer.

It’s also a way for the seller to keep the home on the market in case the proposed sale doesn’t go through. If the seller receives another offer, he or she must initially notify the first prospective buyer, who has the right to keep moving forward with the transaction or drop the contract and leave the seller free to sell it to the next buyer.

Warnings for Buyers

A contingency offer is convenient for you when you’re seeking to purchase, and it may be your only practical option, given your financial situation. But it’s not an attractive offer to most sellers.

They want a contract that guarantees them money for the sale of their home, so if another offer without a contingency comes in at the same time as yours, the seller will probably accept that other offer.

Warnings for Sellers

Making a contingency offer is an easy way for buyers to “sort of” commit to the purchase of a home. If you’re offered a contingent contract, make sure the buyer has listed the home he or she is supposedly going to vacate.

Otherwise, the buyer hasn’t actually committed to selling the old home, and the seller of the new one may never see the money. Ideally, sellers would accept a contingency offer when the buyer is in the final stages of closing on a home.

If that is not happening, consider the market: Is the buyer’s home in good condition, in a desirable neighborhood, and priced right to sell? If the odds look unlikely for it to sell, you don’t want to accept the contingent offer.

Alternatives to a Contingency

Many sellers are hesitant to accept a contingency offer based on their fear of never closing. Instead, they might ask the buyer to remove the contingency and agree to a longer escrow. Ideally, this gives the seller more time to sell the home, but it doesn’t lock the seller into a contract that might never go through.

In other cases, the seller may choose to work with the buyer by removing the home from the market and waiting for the buyer to sell his or her existing home. This must be written into an offer contract, and it’s more likely to work in a market where buying and selling are difficult, and the sellers are desperate.

If you’re a buyer in this scenario, think about your own risks in accepting such a contract. You ought to be fairly certain you can sell your property or come up with the funding to buy a home otherwise.

Contingency Offers Are Common

Given those warnings, don’t stress too much over a contingent offer. These are arranged quite often with success.

The National Association of Realtors reports that only 30 percent of homebuyers are buying a home for the first time. A contingency offer is the most common way for current homeowners to sell their home before buying a new one, so the odds are high that you’ll receive such an offer if you’re selling.

This is not as good as getting a no-strings-attached contract, of course, but it’s certainly better than no contract at all. The goal is to try to find the best deal; whether you’re buying or selling, and after doing your research on the market and fully grasping the situation and your options, you may decide that a contingency offer would be just fine.

Let Green Residential Assist the Buying and Selling Process

Buying and selling a home — whether through a contingency deal or otherwise — requires a team of people who know the market, have your best interests in mind, and will do what it takes to close a home. Green Residential is the team for you if you live in the greater Houston area.

At Green Residential, we believe in providing the best quality of service to our clients, which is why we offer a potentially lower commission. We accept our sales commissions on a flat-rate basis, not a percentage.

This means you could spend significantly less on your home sale than with a Realtor. If you’re ready to sell your home with lower commission, contact us today!

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