What is a contingent offer? There are many types of contingencies that accompany an offer. We are specifically going to be talking about offers that are contingent upon the Buyer having to Sell their home before they can buy the home that they want to purchase. In other words, in order for the buyer to perform and close escrow they have to sell their home in order to do so.
Things to Think About:
1. When countering an offer that is Contingent upon the buyer selling their home in order to purchase, the seller should always counter the number of days that the buyer has to actually get their home into contract. For example, if the buyer does not have their home in contract (meaning they have procured a buyer for their home) within a specific timeframe, the seller would reserve the right to cancel the contract and move on.
2. The seller should understand that even if the buyer removes their Contingency to “Sell” their home, that removing that contingency really isn’t even worth the paper it is written on until the home the buyer is trying to sell actually CLOSES. Why? They CANNOT perform without the funds from the home that they are selling. However, if the buyer is able to secure a bridge loan or borrow the money to close on their new home, then it would be safe for them to remove this contingency. Be sure, they show you Proof of such funds.
3. If the buyer does remove their contingency and at a later time are NOT able to perform, it is very difficult to retain their deposit. If the buyer does not voluntarily give up their deposit and let the Escrow Company know that they are “Willing” to give up their deposit to the seller, the Title Company cannot legally give the deposit to the seller without the written consent of the buyer. The seller would then have to take the buyer to court and show that they did “Suffer” financial damages and or loss in order to retain that deposit. Also, without a “Release of Contract” the seller cannot sell their home to another potential buyer, which is also a risk.
4. When countering this type of Contingency, the seller should have a clause in the counter offer or contract that states that if another offer comes in, the seller reserves the right to cancel the offer in a very quick time frame. For example: within 24 hours. Also, it is very important that they require the buyer not to just remove the contingency, but to also show the buyer has the “Funds” to close the escrow without having to sell their home. If they do not have the funds to close the escrow without selling their home, the seller needs to make sure the buyer knows they will still cancel the contract. Removing the contingency is not enough, the seller needs to require the buyer to put their money where their mouth is, so to speak.
5. Lastly, a seller should know and understand that taking a Contingent offer is much riskier than taking a Non-Contingent offer. If the seller has the choice between taking an offer that is Contingent vs. a Non-Contingent offer, they should take the Non-contingent offer over the Contingent offer. Remember, there are three parties to the transaction instead of just two when you have this type of contingency.
Please don’t hesitate to call or e-mail with any questions or comments. We are here to help at any time. www.KristaHomes.com. Krista Mashore 925-325-4663