Posts in category 'Real Estate'

In real estate, it's often said that one deal can depend on another, and nowhere is this more evident than with offers contingent on the sale of another home. These contingencies create a domino effect, where the success of one transaction depends on another, and the outcomes can be complicated and stressful. In this blog post, I'll break down the different types of contingencies that sellers may face, the pros and cons for both buyers and sellers, and how to best navigate these situations.

Understanding Contingent Offers

A contingent offer is an offer to purchase a home that hinges on the buyer selling their existing home. There are three common types of sale contingencies:

1. Contingent on a Home Sale That Is Not Yet Listed
2. Contingent on a Home Sale That Is Listed but Has No Offers Yet
3. Contingent on a Home Sale That Is Under Contract

Each of these scenarios carries its own set of challenges and risks.

1. Contingent on a Home Sale That Is Not Yet Listed

Pros for the Buyer:

• Buyers can make a move on their next dream home while taking their time to get their current property ready for market.
• Less pressure to rush into the listing process, potentially allowing for better marketing and staging.

Cons for the Buyer:

• The purchase of the new home may be delayed or even lost if their current home takes longer to sell than expected.
• Buyers might need to prepare their home for sale on a tight timeline once their offer is accepted, adding pressure and stress.

Pros for the Seller:

• Attracting buyers with a contingent offer may allow sellers to keep their home under contract while still accepting backup offers.

Cons for the Seller:

• Sellers risk being tied up with a deal that has no clear timeline for the buyer's sale, adding uncertainty to their move.
• The contingency may scare away other interested buyers who want more certainty.

2. Contingent on a Home Sale That Is Listed but Has No Offers Yet

Pros for the Buyer:

• The buyer has already listed their current property, showing they are committed and making progress toward selling.
• If the buyer's home is well-marketed, they could get an offer at any time, which would help speed up the process.

Cons for the Buyer:

• If the property doesn't attract any offers quickly, the purchase of their new home can be at risk. They might need to consider reducing the price or improving the home to entice buyers.
• Stress and anxiety can increase, as buyers worry about timelines and potentially losing out on their next home.

Pros for the Seller:

• There's still the possibility that the buyer's home will sell soon, allowing the transaction to move forward smoothly.
• The seller's property is under contract, which might make them feel more comfortable even though it's not a guaranteed sale.

Cons for the Seller:

• The uncertainty can cause significant stress for sellers who may want or need to move quickly.
• If the seller finds a new home they want, they are limited by the buyer's ability to perform, making it risky to move forward with their plans.

3. Contingent on a Home Sale That Is Under Contract

Pros for the Buyer:

• There is greater certainty for the buyer, as their existing home is under contract. The risk of losing out on the new home is considerably reduced.
• This scenario often provides more confidence to the seller of the new property.

Cons for the Buyer:

• If the sale of their home falls through for any reason, the contingency could result in losing the opportunity to purchase the new property.
• Unexpected issues with the buyer for their home could derail both transactions.

Pros for the Seller:

• There is significantly less risk because the buyer has their property under contract, meaning they are likely to have funds available soon.
• Sellers may feel more confident in moving forward with purchasing their next home.

Cons for the Seller:

• There's still some level of uncertainty until the buyer's home officially closes. Depending on the contingencies in the original sale, unforeseen issues can always arise.

The Domino Effect and Managing Risk

The main concern with offers contingent on home sales is the domino effect—one delay or cancellation can derail multiple transactions. Sellers who choose to accept such an offer must understand the level of risk they are assuming, and buyers must recognize the pressure they will be under to sell their existing property in a timely manner.

To mitigate these risks, it's important to take a measured approach:

• Back-Up Offers: For sellers, having a backup offer can provide peace of mind if the contingent offer falls through.
• Timeframes and Escalation Clauses: Well-defined timelines, where contingencies must be removed by a certain date, can reduce uncertainty for sellers. Buyers, meanwhile, need to understand their timelines for listing and selling to ensure they can meet obligations.
• Agent Reputation: How an agent manages contingent offers can reflect on their reputation. Poorly managed contingencies lead to frustration, delays, and dissatisfaction for all involved. A good agent will ensure that every possible outcome is planned for and discussed with their clients before moving forward.

Pros and Cons Summary

Conclusion

Accepting an offer contingent on a home sale is always a balancing act between the pros and cons. Sellers must decide if the risk is worth it, while buyers must be realistic about the potential hurdles they face. For agents, managing expectations and ensuring clear communication is vital to safeguarding their clients and their own reputations.

If you're considering accepting or making a contingent offer, understanding the implications of each scenario is crucial. It's all about timing, preparation, and the willingness to adapt should things change. Real estate transactions are often unpredictable, and the more prepared everyone is for the domino effect, the smoother the process will be.

I've done a lot of reflecting this past year about real estate and my place in the industry. I remember back in 2009/2010 my husband and I were looking for investment property. I was consumed with real estate, checking Realtor.com every day to see what had come on the market and calling my Realtor friend to show us listings. I was reasearching sold listings on the Auditors website and reading through documents online. I was doing so much research that I felt like I was calling my Realtor just to get in the door. 

Eventually I was at a Sheriff Sale with a close friend and he suggested I just get my real estate license. That was in November of 2010 and by February of 2011 I had completed my classes and passed my test. I guess that's a fast forward because, before you can TAKE the test, you have to be sponsored by a broker...

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How does a seller pick the highest and best offer? So many people are talking about an overwhelming amount of showings when a house gets listed. And then the seller is asking for "highest and best". What does that even mean

Is there a difference between HIGHEST and BEST? Actually there is... You could have one or the other or BOTH.

If you're wondering how to get your OFFER ACCEPTED in today's climate, let me help you out.

FIRST AND FOREMOST You need a great REALTOR who knows how to compete in a multiple offer situation. After that... it's as easy as 1-2-3

1* You absolutely MUST have your pre-approval or proof of funds BEFORE you start your home search. You will need to submit this with your offer. And you don't want to s...

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I see a lot of new listings in the MLS that maybe go in on Friday and say something like "Please submit all offers by 5pm on Monday". This was a great strategy maybe back in November. However, now that more and more houses are coming on the market, that might not be the best idea.

First of all, most buyers are under time constraints. They are looking at a house today because they most likely NEED to buy a house today. If they see it today and submit a GOOD offer today, you might want to negotiate with them or accept their offer.

Some buyers don't want to get into a bidding war. I've had buyers ask me to schedule showings and when I tell them the seller isn't reviewing offers for 3 days, 5 days, sometimes a week...

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