Q & A: Should a Seller Consider a Contingent Offer?

Q: We have received a contingent offer on our home. What are the pros & cons of accepting a contingent offer? We have been on the market now for a couple weeks with no offers. Sarah in San Ramon

A: Great question Sarah. Contingent offers have not been too common in the strong seller’s market we have been in. Generally we see more contingent offers (contingent on the sale of a home) when the market is more balanced, or in a buyer’s market. But in the right situation they can be worth pursuing. As usual, there are pros and cons to a seller accepting a contingent offer.

Reasons to consider a contingent offer include:

Price. Contingent buyers are usually willing to pay a good price for the property, often more than a non-contingent buyer. And that is only fair, as they in effect are compensating the seller for taking the risk of their home selling.

Timing. If you as a seller have lots of time, or don’t want to be forced to move quickly, a contingent offer can sometimes be a better choice than demanding non-contingent buyers who may not want to work with your schedule

Ease of Sale. If the buyer’s home is easier to sell than your home, then a contingent offer can make sense. For example, if you are selling a home that has a very narrow market with a limited buyer pool, and the buyer makes an offer subject to selling their home in Palo Alto, it can make a lot of sense to consider it, as the buyer’s home will likely sell in about 8 hours, and your home may take months to sell

Reasons to be wary of a contingent offer include:

Locking out Non-Contingent Buyers. If you accept a contingent offer, you are possibly losing out on other non-contingent buyers. One way around this is to include a release clause that gives you the seller the right to accept a non-contingent offer and cancel the contingent offer after a certain period of time (usually 2 days). Even if you continue to market the property as a contingent sale where you can accept a non-contingent offer, the showing activity drops as buyers typically do not want to pursue a home they may not be able to secure.

Lack of Control. A contingent offer is essentially an option to buy your home, as it is up to the buyer to decide if they want to accept an offer on their home. Or the buyer may decide they want to ask a price above what the property is worth. Very important to review carefully the pricing strategy of the buyer on their home before you agree to tie up your home

Added Complications. As a seller, not only do you have to get through your own contingency period, but your sale is also subject to the buyer of the buyer’s home getting through their contingencies. In effect, you are often adding twice the contingencies, and increasing the odds of something derailing your sale

Uncertainty. If you accept a contingent offer, you will be adding uncertainty to the transaction. It becomes difficult to make firm plans around moving, as you need all contingencies removed before you can safely commit to moving. Even then, you may not want to physically move until your transaction closes in the event there are any last minute hiccups.

Contingent offers are not to be automatically dismissed, nor should they always be embraced. As is often the case with real estate, it depends on the situation.