Real estate contingencies make comeback

Steps sellers can take to maximize chance of sale

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Aug. 16, 2010

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Steps sellers can take to maximize chance of sale

Dian Hymer
Inman News

During the recession of the early 1980s, when mortgage interest rates hovered near 18 percent, few homebuyers could qualify for financing, particularly if they already owned a home that needed to be sold before buying a replacement home. Offers made contingent on the sale of the buyers' current home were popular.

Contingent-sale offers are increasing in the current housing recession. Most buyers who want or need to make a move to a home that better suits their current lifestyle can't qualify to buy before selling their existing home due to stringent mortgage qualifying criteria.

Sellers don't like offers that are contingent on another property selling because it increases uncertainty. If the buyers don't price their house right for the market and it doesn't sell, the sellers are back to square one searching for another buyer.

Most buyers aren't keen on selling their current home before they know where they will be living next. This can limit buyers' prospects because many sellers won't accept contingent-sale offers.

The best houses at the best prices usually sell quickly, sometimes with multiple offers. Sellers usually reject contingent-sale offers if there's another qualified buyer who doesn't have to sell a home.

As always with homebuying and selling, compromises must be made. In areas where home sales are slow and there are many homes on the market, a contingent-sale offer may be better than no offer.

A drawback is that once the sellers accept a contingent-sale offer, this fact must be disclosed to other interested buyers. This can slow the showing activity. Aggressive marketing, like continuing to hold Sunday open houses, can counteract this to some extent.

Sellers who accept contingent-sale offers can continue to entertain offers from other buyers for backup position, subject to the collapse of the primary offer. But when there is plenty of inventory for buyers to choose from, there's not much incentive for a buyer to make an offer on a listing that already has an accepted offer -- even though it is contingent on the sale of another property.

HOUSE HUNTING TIP: Sellers who accept contingent-sale offers can maximize their chance of selling by including a release or escape clause in the contract. This clause allows the sellers to notify the contingent-sale buyers that they have accepted another offer in backup position and that they are invoking the release clause.

The release clause has a time frame -- often 72 hours, but it's negotiable -- within which the primary buyers must remove the contingent-sale contingency and provide evidence that they can close the sale of the replacement home without having their home sold. If they are unable or unwilling to do so, the first contract is canceled and the backup buyers move into primary position.

Recently, buyers who were in contract to buy a home contingent on the sale of their home were delivered a 72-hour notification. The buyers who were kicked out of contract had their home on the market but hadn't found a buyer in time.

It's tempting for buyers who lose a home they want to another more qualified buyer to pull their home off the market and wait for a better time to sell. However, it's near impossible to buy contingent on the sale of another home in a seller's market when buyer demand is high.

THE CLOSING: It's inconvenient for most buyers to move to an interim rental if they sell their home before they find a suitable replacement home. But, with cash in hand, they have the luxury of waiting for the right house. They can make a stronger offer and probably receive a price concession compared to the premium usually paid to entice sellers into accepting a contingent-sale offer.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

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