Sale Contingencies

June Cover

Please feel free to email me your real estate questions directly to Yien@TheYaoTeam.comI answer them daily.  If I use your question in my articles, your confidentiality is always guaranteed!

Q:  We are trying to sell our home.  We have an offer from interested buyers but they have to sell their home first.  Is this common?  Should we accept it?  What are the risks?

A:  Yes this is actually a common occurrence now.  In a healthy real estate market lots of homeowners are upsizing or downsizing.  We’ve managed many such cases in the recent 3 years.  It’s important to know there are 2 distinct types of contingencies where the buyers have to sell their home first before they can qualify to buy a new home.

1)  Contingent on the buyers “SELLING” their home.  This is when the buyers’ own home is not yet under contract.  Sometimes it’s not even listed yet (many buyers do not want to list their own home until they find the home they want to buy).  We typically recommend against this type of contingency because of its uncertainty, unless sellers are willing due to (a) sellers’ home is a unique property with limited potential buyers, (b) sellers are not in a hurry, AND (c) the buyers’ home is more sellable.  For example, lower price point homes generally sell easier and faster than higher price point homes. The experience and reputation of the buyer’s agent should also engender confidence in performance.

2)  Contingent on the buyers’ own home “CLOSING”.  This is when the buyers’ home is already under contract.  This is quite a different situation and is something we work with frequently.  We would request a copy of the buyers’ own contract and their buyer’s financial qualifications.  We would evaluate the details and status of their contract to assess the solidity of that transaction.  This is a much better proposition.  There is an actual proposed closing date and other timelines where progress can be monitored.

The risk of accepting such contingency is you can wait several months and end up with a cancellation due to circumstances outside of your, and your buyer’s, control.  You can even miss a peak selling season while waiting.  So, if you receive an offer with one of the above contingencies, there are also a number of ways to counter.  One of the options is what we call a kick-out clause or first-right-of-refusal clause.  If such a clause is accepted by the buyers, the conditions are:

1)  The listing remains ACTIVE in the MLS, with required language disclosing the existence of the current contract.   Agents may request showings and submit offers normally.  (Caveat:  once in this status, our experience shows that showings decrease, because many buyers do not want to be a “back-up”)

2)  If a legitimate offer comes in, the sellers can negotiate it into a bona fide back-up contract.  The first buyers then have a finite time window to either back out or place additional deposit and waive all remaining contingencies.

3)  If the first buyers back out, sellers can continue the new contract with the second buyers.  If the first buyers do not back out, the additional non-refundable deposit provides further assurance to the sellers that they will close.  Of course we always assess the situation to see if the buyers can back up their claim.

I have to stop here.  I hope this is a helpful read to you.

Until next month, take care!