If you currently own a home and are getting ready to buy a new one, your offer may be contingent on the sale of your home. The home sale contingency allows you to get out of the purchase if your home doesn’t sell. It’s very risky for a seller to accept an offer with a home sale contingency, but there are many times when the contingency is necessary.
Why Are Home Sale Contingencies Risky for Sellers?
Contingencies allow buyers to get out of the purchase given certain situations. In the case of a home sale contingency, if your home doesn’t sell then you can be released from the contract. The seller will then have to find a new buyer, a process that can take weeks, or longer. If your home isn’t on the market yet, they won’t know if it will sell at all, or for a price that will allow you to buy their home, so there’s little reason to take their home off the market.
Home sale contingencies can also have a domino effect. Let’s say that you’re selling your home to buy a new one. You’ve accepted an offer with a home sale contingency and you’re buying a house and that sale is contingent on your home selling. If your buyer’s buyer falls through, the sale of the home that you were going to purchase will fall through.
All that being said, purchases with home sale contingencies happen all the time. In many cases, especially areas with a lot of move-up buyers, home sale contingencies are almost inevitable.
How Do You Know if You’ll Need a Home Sale Contingency?
The only way to know if you’ll need to include a home sale contingency is to talk with a lender and ask. A good lender will accurately assess your financial situation and tell you whether or not an offer will need to be contingent on the sale of your home (they will probably write it into the Pre-Approval letter, too). Unfortunately, a lot of move-up buyers start looking at new homes before they take this step so they don’t find out about it until they’ve found the perfect home.
What Should You Do if Your Offer will be Contingent on the Sale of Your Home?
There are two common types of home sale contingencies. One is the ‘Sale and Settlement of Other Property’ and the other is the ‘Settlement of Other Property.’ Of the two, the Settlement of Other Property will make a much better offer.
If your home isn’t under contract with a buyer, you’ll use the Sale and Settlement of Other Property Contingency. This makes for a long shot offer that few sellers will accept, especially if your home isn’t on the market yet. Once it’s on the market, you can share information on traffic or plans for a price reduction to get your home under contract quickly, which makes is slightly better.
The best case scenario is the Settlement of Other Property Contingency. This means that your home is under contract to be purchased so you’re close to having it sold. The best case scenario would be that the buyers for your home have completed their inspections, inspection negotiations have been finished, the lender required appraisal has been completed and the appraised value is no less than the asking price, and the lender has issued a mortgage commitment letter. The closer you are to settlement, the less risky the home sale contingent offer.
If you don’t have your home on the market or are still far from settlement, it can still be possible to have an offer with a home sale contingency accepted. Usually, that means making the price and other terms as compelling as possible. Some sellers may jump at an otherwise strong offer.