Contingent Offers - Are They Worth It?

One of the questions I get on a regular basis from sellers is “Should I consider a contingent offer?”  We are talking about an offer contingent on the buyer selling their current property.  In the ridiculously overheated market we are coming out of, this was generally not an option, as sellers had several offers to choose from in most cases.  In a seller’s market, contingent offers generally have a low probability of success.

But now that the market has shifted, we are starting to see more contingent offers.  The question is, should a seller consider it?  In general, there are 3 reasons a seller might consider a contingent offer:

1. They are not getting any interest outside of the contingent buyer. If it is slow going, and a contingent buyer is really motivated to buy your home, it might make sense. 
2. You may find a contingent buyer is willing to pay a higher price than a non-contingent buyer
3. The buyer’s home is easier to sell than the seller’s property. If your $2 Million dollar home is contingent on the sale of a townhouse in the same market, it might be worth the gamble in the sense that the buyer’s home should be easier to sell.  If the buyer owns 10 acres in Alaska, it might be questionable

If it is early in the process, and you are getting decent showing activity, it might make sense to give it a little time to see if a non-contingent buyer emerges.  Remember that with the shifting market, average days on market for most listings are on the rise, so some patience is likely warranted.

Most importantly, the success of a contingent offer is primarily dependent on the motivation of the buyer.  If the buyer is highly motivated, and willing to price their property aggressively to get it sold fast, then the odds of success are higher.  It is imperative that your agent conduct due diligence to determine how saleable the buyer’s home is, and how attractive their proposed list price is, and if the buyer is willing to adjust their price if their home is not selling.

The downside to the seller of a contingent offer is that you are essentially giving the buyer an option to purchase your home, without any option fee.  Again, if the buyer is motivated, you have a chance of making it work.  If the buyer is not terribly motivated, or if they are constrained in terms of the price they can accept, the odds go down.  As a seller, you can not force the buyer to accept any offer.  It is 100% in control of the buyer, which is why motivation is the critical factor.  The buyer decides if and when they have an offer they are willing to accept on their home.

As always, consult with an experienced, professional REALTOR to decide if a contingent offer makes sense in your situation.