home with a contingency
Buying a home with a sale
contingency means you are purchasing a new home, but
you need to sell your existing home in order to
complete the deal. This is usually for financial reasons (down
payment funds, new loan requirements, etc) . The
question is, do you sell your home first to free up the cash
or should you buy with a sale contingency? If you sell first,
the biggest issue could be ending up "homeless" while
you shop for a replacement. Also, what if you find the perfect
home and you're worried that it may not be there after you sell your home? For many reasons, it may make
sense to make an offer with a sale contingency.
of home sales will accept a contingent offer?
Mainly just standard
This is a sale where the sellers have equity in the home and
they are free to negotiate terms and conditions. Short sale home lenders almost never agree to accept a contingent offer.
This is also true for bank owned homes (REO properties).
The underlying lender for a bank owned property usually wants
a fast close on the home. A contingent offer is considered to
be too risky for the lender. In fact, I have never
seen a case where they will accept a contingent
There are several levels of
sale contingency, listed here from worst case to best case
Home not yet listed
for sale - You have not yet contracted to
put your home on the market. This is the toughest one for the
seller of your new home to accept. In many cases, this
level of contingency will be rejected.
Home listed for sale,
but not in escrow - Still a tough one, but at
least you'll have an MLS reference. The main issue of course, is how long will it
be before you do get an accepted offer. Also, how sure are
you that you will get the price that you need? It is
typical for the seller's agent to counter with a specified
time frame for your home to sell. If it fails to
sell within that time period, the sellers have the
option of canceling your purchase contract.
Home in escrow
without contingency removal - This means your
buyers have not yet signed off on all of their inspections
or due diligence, and their earnest money deposit is not
yet at risk. This is a much better sale contingency than 1
& 2, because the seller understands that you now have
a good chance of closing on your home. Sellers are more
likely to accept a contingent offer if your home is
already in escrow, but since buyers do fall out, the
sellers may still have the option of sending you a Notice
to Perform after a specified period of time.
Home in escrow and
your buyers have removed all contingencies - This
means that your buyers have now signed off on all of their
inspections, loan processing, review of title, etc, and
their earnest money deposit is at risk, The is the
strongest sale contingency because the chances of closing
on your existing home is now excellent. If you enter into
a contingent purchase contract while your home is in
escrow, you may need a rent-back agreement on your home so
that you don't wind up homeless after your sale.
How is a
contingent offer written and how likely are sellers to accept
Your agent will add a form COP (Contingency for sale or purchase of other
property) to your offer forms. The form COP contains
information on your sale (not listed yet, listed for sale, in
escrow, etc) plus timetables for the sale, etc. Many sellers
will accept a contingent offer if their house has been very
slow to sell or if the overall market is in a down-turn.
However, many other sellers may not accept it, as it
adds a layer of uncertainly to the deal. One of the dangers
sellers worry about is the "domino effect", where
something goes wrong with one party in the chain (your buyer,
you, or the seller of your new home). A problem in the chain
could mean that several deals that are all dependent on each
other are now in jeopardy.
If the sellers of your new home
do agree to a contingent deal, they will typically have a clause in the contract that allows
them to accept a non-contingent offer over yours. This is done
by sending you a "Notice to Perform", which
instructs you to remove the contingency within a couple of
Failure to do so means the sellers have the option to cancel
your purchase contract and accept the other one.
a home on contingency in a seller's market
a very competitive market, having a sales contingency can put
you at a disadvantage with competing buyers. If you are in a
seller's market and you have a sales contingency:
your home on the market right away. An active listing in
the MLS is far better than not having it listed yet.
your agent assure the seller that you will make every
effort to sell your home quickly by pricing it to
your purchase offer as high as possible to beat the
competition on price. The seller may look more favorably
at your contingent offer if it is a high offer.
other offer concessions, such as offering a high earnest
money deposit, paying for your own home warranty, or
offering to remove other contingencies quickly.
to ensure that you do not end up being homeless!
One of the main issues with a
contingent sale is the possibility of ending up
"homeless" for a short period. This could happen if
your sale closes before escrow is closed on your new home,
your new home falls out of escrow, or the buyers of your home
cancel their purchase. Now you're finding yourself in the
process of selling
your home and you may not have a new home to go to. Or, you
may be in your new home and now have to pay two mortgages
until your other home sells!
There are several ways to
ensure that you do not wind up homeless:
Have your listing agent add
this phrase to the MLS for your home: "Sale is contingent
upon sellers locating a suitable replacement property".
This indicates that you will accept offers and possibly open
escrow, but that your escrow cannot close until you have found
a new home and have an assured close date on it
form SPRP (California): This form (Seller Purchase
of Replacement Property) informs the buyer that one of
your contingencies is the successful purchase of a
replacement property with a concurrent close of escrow.
Ask the seller of your new
home if they would agree to extend escrow. If there is a delay
in closing on your old home, you may be able to ask the
sellers of your new home to cooperate by also extending their
Rent back after the sale. If
you need more time to close on your new home, you may be able
to negotiate a rent back on your old home for a given period of
time after it closes. Your agent can set this up using
California Real Estate forms PAA (Purchase Agreement
Addendum) for rentals of 30 days or less, or form RLAS (Residential Lease After Sale) for longer term rent back.
you want to lock down another home and you don't wish to write
a contingent offer?
This situation may occur if you
are hoping to buy a bank owned home (REO) or a short sale. You
may also wish to do a non-contingent offer to make your offer
more competitive, especially if there are other offers on the
See if you can get a
"bridge" Loan - This is a
short-term loan used to "bridge " a deal, until
longer term financing can be arranged. These loans may
have much higher interest rates but they are temporary
loans so the cost should not be too much of an issue.
Check if you qualify
to purchase the home while still owning yours - This may be with a loan that has a much lower down
payment. See if your lender will approve you for an FHA
loan with 3.5% down, or a lower down conventional loan.
I'll be happy to assist you
with a contingent purchase! I can list your home and get it
sold while helping you shop for your new home!