Contingent Offers – The Good and the Not So Good

Housing

Image by james.thompson via Flickr

One of the questions that comes up quite often from home sellers in Pleasanton, San Ramon, and the Tri-Valley is “should I consider a contingent offer?”  So first of all, let’s define contingent.  In this case, we are talking about offers that are contingent on the sale of another property. As is often the case with real estate, the answer is “it depends”.  So let’s run through the factors you should consider as a seller in evaluating whether or not you should consider a contingent offer.

Timing. The first and perhaps most important question is how much time do you have?  Since the buyer’s property is not sold, and in fact may not even be on the market, it may take several weeks or even a few months to get their home sold and closed.  So if you are up against a deadline, a contingent offer might be a non-starter.  If you have time it might not be a bad strategy, especially if showings have been slow.  If you are building a home, or don’t want to move until school is out, etc, you might welcome a longer escrow and closing.  But if you are behind on your payments, and someone from the bank came by and posted a threatening looking notice on your door, a contingent offer will not work for you.

Price. If price is your most important consideration, and you are willing to trade time for price, you might have to consider a contingent offer.  Often contingent buyers will pay more and/or be less demanding than a non-contingent buyer.  And cash buyers are notorious for being hard bargainers when it comes to price.  If you don’t want to feel like  you are negotiating with Atilla the Hun, a contingent buyer may be more to your liking

Certainty. What value does certainty have to you?  Do you really need to sell?  If you don’t, and are willing to roll the dice a little bit, than you might find a contingent offer attractive.  If you absolutely need to close in 60 days, then you best play in the non-contingent arena.

Complexity. Contingent offers are more complex.  There is no getting around that.  There are more variables to negotiate, and all of them can have an impact on you if you are selling.  How long does the buyer have to secure a buyer for their home?  Are you allowed to take other offers while the buyer’s home is for sale?  If you have a”release clause” which allows you to accept another offer, how much time does the buyer have before you can cancel their offer?  It is normally 24 to 72 hours.  What happens if the buyer does sell their home, but it falls out of escrow?  All of these issues need to

Control. In many ways, when a buyer makes a contingent offer on your home, they are essentially getting an option to buy your home.  As a seller, you are dependent on the buyer being able to sell their home in a reasonable amount of time, yet you have no control over their situation.  The buyer decides when and if their home will sell.  You as a seller can’t force the buyer to take an offer or negotiate reasonably.  The buyer in this case controls the situation.  You are banking that the buyer for your home has strong enough motivation to be reasonable and secure a qualified buyer for their home.

Possession. Contingent offers can create issues with possession.  As a seller, you don’t want to start packing and moving until you know your buyer’s home has sold.  And any delays in the buyer’s escrow on their home can create logistical problems on your end.  It is always best to build in an option to rent back to give yourself some flexibility in dealing with contingent offers.

Reduced showings. What does a seller have to lose in taking a contingent offer?  You might lose potential non-contingent buyers who do not want to get involved in writing an offer on a property with an existing contingent sale on it, since there is a bit of uncertainty as to whether they can end up buying the home.  That buyer has to wait out the release period (where the seller can cancel the agreement after a period of time if the contingent buyer can’t remove the sale contingency).  And some agents don’t bother showing contingent offers for the same reason.  So my experience suggests that you will have fewer showings once your home is sold contingent, even when you have a release clause.

I have had several contingent sales work out quite well.  I have also had a few that never materialized.  When it is all said and done, much depends on the motivation level of the buyer and how sale-able their home is at their asking price.  At a minimum, your agent should see the buyer’s home and do a market analysis to determine if the buyer has a reasonable chance to sell their home.  It is up to you as a seller to do your due diligence to determine the odds of success.  A little bit of homework upfront can save you from a potentially frustrating situation later.

Enhanced by Zemanta