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Pros and Cons of contingency offers.
For years, sellers flat out rejected contingent sale offers. Now, some
buyers are finding sellers more receptive to offers that are made contingent on
the sale of another property.
Sellers don't like contingent sale offers because they tend to be riskier
than offers that aren't dependent on another home selling. One fear is that
buyers might ask too much for their home and it might not sell at all. In this
event, the sellers could waste time while their home is off the market and then
find themselves back at square one looking for a new buyer.
In a real estate market that's moving full steam ahead, there's little room
for contingent sale offers. When the demand for listings outstrips supply,
sellers can easily find non-contingent buyers with whom to negotiate. Why accept
a less-than-certain offer if you don't have to?
However, when the market slows, as it has in some areas and in some price
ranges, sellers can't afford to be as choosy. Recently, a seller of a home in
Piedmont, Calif., decided to take a chance on a contingent sale offer. The
seller had previously received two offers, both for less than the asking price.
She rejected both offers. Eventually, a full-price offer appeared. The seller
accepted it, even though it was contingent on the sale of the buyer's
home.
In this case, the seller was willing to accept higher risk in return for a
higher price. This is often the case. Another property in a desirable
neighborhood of Oakland, Calif., recently sold to a contingent sale buyer. The
property was priced well over $1 million, which is a slower price range in this
area. After months on the market with no action, the seller decided to give a
contingent sale buyer a chance.
So, a benefit to a seller of accepting a contingent sale offer is that you
might receive a higher price than you would from a buyer who doesn't have to
sell in order to buy. On the buyer's side of the equation, you may have to pay
more to entice a seller into accepting a contingent sale offer.
It may be worth it to the buyers to pay more for the security of knowing
that they won't end up owning two homes at the same time. With a contingent sale
offer, if your home doesn't sell, you aren't obliged to buy the other
home.
However, if the sellers insist that your contingent sale offer include a
release clause, you risk losing the house to another buyer if your home doesn't
sell in time. A release clause allows the sellers to continue marketing their
home until you remove your sale contingency from the contract.
Suppose the sellers accept an offer in backup position. If there's a
release clause in the contract, the sellers can notify you that you must remove
your contingency within a certain time frame (often 72 hours). Otherwise, you
will have to withdraw and the home will go to the backup buyers.
Another drawback to contingent sale buyers is that they may feel pressed to
sell quickly in order to keep from losing the home they want to buy. This could
mean accepting a lower price.
Sellers who accept contingent sale offers should make sure that the buyers'
home is salable and that it will be listed at a reasonable price. In some areas,
the lower priced market is selling much more quickly than the $1 million-plus
market.
The closing: In this case, it may be worth it to
a seller to accept a contingent sale offer from a motivated and realistic buyer
who has a house to sell that's in a more desirable price range.
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