Each year as the spring market gets underway, we end up seeing a lot of buyers who are anxious to find a home, but not quite ready to buy. They are ready mentally, but it is the financial part that seems to get in the way – normally caused by having a house that they need to sell first.
A lot of buyers in this situation begin looking at homes just to see what is out there, and oftentimes fall in love with one. At that point, the conversation between them and their real estate agent turns to how they might be able to put an offer on that property and lock it up before someone else does. And, unfortunately for many of them, the only option is to present an offer to the seller that is contingent on the sale of the buyer’s home. Problem is – it doesn’t really do anything, and the seller will likely not accept it anyway.
I wanted to bring up this topic since it has come up several times around our office just this week. In a couple of these cases, the home that the buyer was interested in had only been on the market for a week or two, and each of those sellers had quite a bit of showing activity. So, neither of them was interested in taking a contingent offer at this time. They were both worried that, by accepting an offer of that type, it could potentially harm them in causing other non-contingent buyers to avoid viewing their home at all, since those other buyers may feel that the contingent offer could come together while they waited out the allotted time. Or…it may not.
The way a contingent offer works is that the buyer and seller come to an agreement on price and terms, subject to the buyer listing their home with a real estate broker identified in the contract. It is common to see a 48 hour or 72 hour contingency, which means that if the seller accepts an offer from another buyer, the contingent buyer will have that allotted period of time to come up with a fully signed purchase agreement on their home, subject only to financing. It is generally quite a feat to accomplish that, as most all buyers ask for home inspections, which would cause a delay in being able to provide the seller with proof of a fully accepted offer.
The long and short of this issue is that contingent offers are generally bad for buyers and sellers, unless there are other underlying issues that can cause it to make sense. One of those cases may be when a home has been on the market for a considerable period of time, and the seller is not likely to receive an offer in the short term from anyone else. The buyer may be able to negotiate a good price on that type of property, and then be able to put their home on the market for a little bit less to create a quicker sale. That would typically be a win-win for both parties.
In my opinion, a better strategy than a contingent offer is for the buyer to get their home on the market, and only accept an offer subject to finding the home of their choice in a certain period of time. If the home they are interested in sells before they can make a non-contingent offer, and if they are sincerely looking for a home that fits their needs instead only that home, then they have several advantages in using this method
- They will be a much stronger buyer with a non-contingent offer, which may help them get a better price on the home they are purchasing. However, when the market is hot, that may or may not be the case.
- They don’t risk selling their home and not being able to find one that suits their needs
- There will be a lot less heartbreak! When buyers come to an agreement on a contingent offer, they mentally move into that home. Once it is taken away from them by another buyer, it is very emotional for them, and always difficult to find another home that lives up to the one they lost – in their minds.
So, if at all possible, try to avoid contingent offers. Instead, find a motivated agent who will be truthful with you on price and condition so that your home will sell quickly. That will get you in the driver’s seat, and moved on to your dream home.