Ron Denhaan, Realtor (949) 290-3263. Orange County real estate specialist.
Home page - Ron Denhaan, Realtor
Ron Denhaan - Contact me at (949) 290-3263 or ron@rondrealestate.com - Thank you!
Search for homes
Ron Denhaan - About me button
Sell your home
Lease your home
Short sell your home
Essential Articles
Vital Resources

 Community Links

Coto de Caza
Dove Canyon
Mission Viejo
RSM
Trabuco Canyon
Lake Forest
San Juan Capistrano
Ladera Ranch
Aliso Viejo
Laguna Niguel
Laguna Hills
Irvine
Tustin
North Tustin
Yorba Linda
Fullerton
Costa Mesa
Beach Areas
Canyon Areas

 Specialty Sales 

Lots and Land
Homes with large lots
Horse properties
No Mello Roos
Bank Owned homes
Single Story homes
Golf Course homes
Luxury homes 
Income properties
Vintage homes
Mid-Century homes
Gated communities
Pool homes

 Selling/Buying 

Homebuyer resources
7 Buyer mistakes
7 Seller mistakes
10 Selling Myths
10 Selling Tips
10 Steps to Buying
10 Steps to Selling

 Leasing 

Leasing FAQ
Pet-friendly leases
Lease with bad credit
Vital real estate web links
Exceptional buys
Mortgage calculator
Featured property
My Listings
Orange County map
Contractor referrals
Listing photo portfolio
The Greener Home
Buy with contingency

Buying a 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. 

What types of home sales will accept a contingent offer?

Mainly just standard sales. 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 offer.  

There are several levels of sale contingency, listed here from worst case to best case

  1. 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. 

  2. 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.

  3. 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. 

  4. 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 it?

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 days. Failure to do so means the sellers have the option to cancel your purchase contract and accept the other one. 

 

Buying a home on contingency in a seller's market

In 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:

  • Get your home on the market right away. An active listing in the MLS is far better than not having it listed yet.

  • Have your agent assure the seller that you will make every effort to sell your home quickly by pricing it to sell.

  • Make 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.

  • Make other offer concessions, such as offering a high earnest money deposit, paying for your own home warranty, or offering to remove other contingencies quickly.

 

Take care 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:

  1. 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

  2. Use 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.

  3. 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 escrow. 

  4. 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.

What if 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 table. 

  1. 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.

  2. 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.

Related links

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!

   Ron Denhaan

Contact me

Ron@rondrealestate.com

BRE LIc# 01728866

Ron Denhaan, Realtor


Copyright 2012- CDC Technology, Inc.  All rights reserved

Bookmark this page!

Bookmark this page

Site Meter