Modern homeowners often find themselves in a pickle whenever they are looking for a new home to move to in a hurry. For example, say that a homeowner recently got a new job in a new city and needs to buy a new house in that city. But they also have to sell their current home, both in order to make enough money to pay for the new property and to avoid paying two mortgages at once. Yet, it’s tough to make an offer on a house if there isn’t a guarantee that the homeowner’s current property will be sold. So many homeowners will add a clause to their buying offer when they find a new property that they like. They state that their offer is “Contingent on Sale of Property”. What exactly does this mean, and how can you leverage it for your own home buying pursuits? Let’s take a closer look at contingencies in real estate deals now.
For the real estate market, “ contingent ” means:
A contingency is essentially a clause in the home sale contract that prevents the sale from going through until one or more contingencies are met. These can include aspects of appraisal, home inspections, mortgage preapproval, or even selling one’s current home before buying a new one.
When a home is listed as Contingent on Sale of Property , it means that an offer has been made and accepted by the home seller. However, the buyer will only go through with the purchasing process if they can sell their current property (usually by a set deadline). For example, imagine a homebuyer A who wants to purchase a house from home seller B. However, homebuyer A doesn’t want to have two mortgages at the same time. So they make home seller B an attractive offer that home seller B accepts, though it is contingent on the sale of the property. In this case, homebuyer A will only finalize the sale transaction and begin the closing process if they manage to sell their current home within a set timeframe. Depending on the exact clause written in the contract at hand, a Contingent on Sale of Property clause can include specifics like:
While Contingent on Sale of Property clauses can be helpful, they are not airtight, and they do not always guarantee that you’ll get the house you want.
Aside from a contingency on the sale of property, contracts may also include other contingency clauses. These include:
A Home Sale Contingency is useful for a number of reasons. For starters, it prevents you from accidentally getting two mortgages at the same time. Most people can’t afford to pay two mortgage payments at once, let alone juggle the responsibilities of moving into a new home and trying to sell their previous home at the same time. Therefore, a Home Sale Contingency allows you to focus on finalizing a home purchase only after you have finalized the sale of your current property. Additionally, most Home Sale Contingencies enable you to get a refund for any deposits or other money you might have put into the deal if it doesn’t go through. For example, if you make an offer for a new house but have a Home Sale Contingency and fail to sell your home in time, the home seller has to give you any money you put down the property back, so the only thing you’ve lost is time.
Want to know how to secure a home purchase Contingent on Sale of Property? Follow these tips to maximize your chances of getting the home of your dreams.
Always make your contingency offer attractive. Sellers aren’t typically big fans of home sale contingencies as they limit their flexibility (especially if the contingency includes a no kick-out clause). But many sellers will choose to live with contingency offers since they don’t want to limit their pool of potential buyers. You can make a contingency offer attractive by offering to pay down certain fees or closing costs, as well as including a very short timeframe if you are confident your property will be snapped up by a new buyer relatively quickly. Speaking of which, you should choose your closing dates very carefully. Home sellers will not wait forever for you to sell your current property, so don’t try their patience by pushing for an extended waiting period (such as up to 90 days from the date on which you make your offer).
You might also consider working with a real estate agent. Real estate agents can help sell your house faster than you would be able to by yourself. A real estate agent may be necessary to sell your home in the first place, depending on where you live as well.However, they Additionally, a real estate agent can help you dress up your home, help you figure out an attractive pricing point relative to the current housing market, and otherwise speed up the selling process. They will charge fees for their services, so keep this in mind when budgeting for your new home purchase.
Most importantly, look to use a Home Sale Contingency if you are buying in a slow real estate market . In a slow market, interest rates will be high, and there will be fewer potential buyers. This means that any seller will be more willing to accept a contingency clause like this, and a buyer has more leverage . Of course, this cuts both ways. You may have difficulty selling your own property in a slow market unless you make it especially attractive. Still, a slow market means that both sides of a house sale deal will likely be more open to negotiation and patience compared to a fast market.
Ultimately, a Contingent on Sale of Property clause is a valuable tool you can use in a home purchase offer to avoid spending too much money at once or becoming saddled with two mortgages for months or years on end. However, you have to leverage your contingencies carefully and only when it’s appropriate. Again, a real estate agent may be able to help you identify when a Home Sale Contingency is a good idea and advise you on how long you should expect the Contingency to hold. Fortunately, you can get the ball rolling with loans from companies like Seek Capital . Contact us today for financing options and additional guidance and advice about real estate, accounting, and more! Sources: Real Estate Investing Home Sale Contingencies for Buyers and Sellers | Investopedia How To Spot The Signs of a Slow Housing Market | The Motley Fool What is a Contingent Offer? What It Means When Buying a Home | Realtor.com