Real Estate Contingency Offers – Pros and Cons for Both the Buyer and Seller

Home buyer contingency offers are predicated on another event occurring, generally the purchase of the buyer’s home by another party. This is generally not very advantageous for the seller, but a very good protective arrangement for the buyer. Buyer Benefits - Buyer’s often will locate the perfect home before they have completed the sale of their current residence. By placing an offer on the new home that is contingent on the sale of their current home they are protecting themselves from ending up with two mortgage payments. This does really protect them from that scenario quite well. Occasionally, you will see a contingency offer based on something else like receiving a settlement check from an insurance company, but this is relatively rare. Buyer Negatives - While a contingency offer does protect the buyer, it also greatly reduces their negotiating power or position. A contingency offer will almost never be considered as strongly as a non-contingent offer. Additionally, a seller is much less likely to reduce their price, or to reduce it as much for a contingent offer. Why would you cut your price for something that might happen? You may partially overcome this issue by requiring a short term contingency period. Seller Benefits – There are not a lot of benefits for a seller unless it is currently a buyer’s market and the home has been on the market for a long period already. Additionally, if the property may only appeal to a small subset of buyers it may be a consideration. If the property has been on the market for a long time a valid contingency offer with a realistic chance of success may be worth the risk. Evaluate the chances of the contingency occurring within the contingency period with your realtor. Determine if the buyers are waiting on the sale of their home, whether it is located in a hot area, do they have an offer, have they accepted the offer, has the inspection been completed and accepted, has the financing been secured, and do they have a closing date yet. Each of these steps that have been completed should increase your interest in considering a contingency offer. Your realtor should be able to help you evaluate the likely hood of the contingency occurring within the contingency period. The length of the contingency period is also a consideration, as the shorter the period, the less it will negatively impact your opportunity to sell the property to another buyer. Additionally, because it is a contingency offer you are in a better position to negotiate a higher sales price. Seller Negatives – A contingency offer is betting on a specific set of circumstances to occur within a specified time period, a gamble. Gambling is generally not something we want to do when selling our home. If the buyer has to sell their home first you are betting on a long string of circumstances occurring within a certain time period. Not a good bet. You are betting on a buyer finding and liking the other home, submitting and offer on the other home, two inspections going well, two negotiations for repairs working out, two sets of financing being approved, two title policies being issued, and finally two closing going off without a hitch. On top of all of these maybes you realistically have the house off the market where no one else will consider purchasing it. While the home is listed active contingent in MLS most real estate agents will pass up showing these homes to clients which effectively takes your house off the market. There are a variety of reasons for this, but one of the main reasons may be the right of first refusal. If their buyer loves your home and wants to purchase it there is a longer waiting period for an answer that well may be negative. The original buyers making the contingency offer generally have a set amount of time to make up their minds whether to drop the contingency and move ahead with the purchase, or let you sell the home to the new buyers. This extra 24 to 48 hours is not something other agents necessarily want to deal with as an added variable that could sour the deal. There is an extra consideration for the seller in this. What if the buyers drop their contingency and agree to move forward with the sale? The sale may still fall through. Without the sale of their other home there is a significant chance they will not qualify for financing your home. Now the house has been off the market and you have missed out on a bonifide offer. In general a contingency offers are not really very good for buyers or sellers. However, each case needs to be individually reviewed in detail with your realtor. There are instances where a contingency offer may make sense for both the buyer and seller. If you would like to review a specific situation please feel free to contact Mark or Kelley Menefee at 512-736-0822 or visit them at Cedar Park Homes For Sale.