What are your thoughts on Home Sale Contingencies in this marketplace?

Frankly Definition:A Home Sale Contingency is where a purchaser has a home that they need to sell first before they can buy a home. Oftentimes these offers are written as "Under Contract with Kickout." I will explain the Kickout part later. 

I was asked about this today by somebody looking to upgrade, but she needed to sell her place first. My initial reaction was "heck no." If you approach a seller that hasn't been able to sell their place in 200 days, you are effectively telling them, "I know you haven't been able to sell your place, but I want you to accept this contract and wait for me to sell MY place." I would think they would laugh.

But then I decided to look closer into the facts and perhaps it isn't so crazy.

I looked up over 1,000 homes in Alexandria, Fairfax and Falls Church. Of those 1,000 that are under contract...

• I found 24 that had Home Sale Contingencies. Or 2.4%

So as I suspected, they are still very rare. Crazy? Maybe, maybe not. If done creatively, I think one might be able to push one through.

Pros for Home Sale Contingency BUYERS:

1. Less risk for the buyer. Their alternative has been to: a) Own two homes at once or  b) sell your place first and run out and buy a place while you are selling your place. (people usually do the "b" option, but there is a major problem if you don't like much that is out there for sale)

Cons for Home Sale Contingency BUYERS:

1. You don't get as good of a price. Sellers care about price AND terms. Similar to the carfax commercial where they illustrate with a balloon how dealers either inflate the trade in, or the new purchase. If you have bad terms, they will hold out for more money. I prefer to write CLEAN offers and be more aggressive on the price.
2. Most contingencies are written with a KICK OUT. This means that if another offer comes in, you will have 3 days to remove your contingency, or they KICK you out to the curb. Also known as Curbin'. No not really, but that would be funny. So, if you listed your house for sale and are halfway through that process and a KICK OUT situation comes up, you bare some significant risk. Do you lose your contract to buy or drop the contingency and risk not selling your house? (there are some creative solutions to fill the gaps in time including Options to extend etc)
3. Your contract can help light a fire under another buyer to finally bid on the house you have under contract, therefore you get Curbed.

Pros for Home Sale Contingency SELLERs:

1. If you are getting no offers, and your house is unique and hard to sell (near a highway or odd style), and meanwhile an offer comes in with a Home Sale Contingency but the agent can prove it will sell fast... heck what is another 60 days?

Cons for sellers:

1. The obvious. You pull your house off the market, nobody sees it and the buyer never gets around to selling their place. Or worse yet, the buyer changes their mind and they have a HUGE way to back out.

How best to do one for buyers:

1. Prove to the listing agent and seller that your house will sell FAST (as in 1-2 weeks). Show them comps, show them the track record of the agent. Even consider LOSING $10,000-$20,000 by underpricing your house to sell fast (something I don't recommend, but something to think about if you can make up that savings on the purchase, also think of it as an insurance fee and cost of making your $100,000 lower offer on your purchase look better). (I hope that wasn't confusing)
2. See if you can do one without any Kickout. A smart listing agent will say no, but you never know.
3. Try to make the provisions as long as possible. But the more you ask them to wait, the higher a price they are going to expect.

Tips for sellers considering taking a Home Sale Contingency:

1. Pretty much the same as above but in reverse. Also KEEP MARKETING the house.The MLS makes you put it under contract and few agents will touch it, but don't forget Craigslist and Open Houses. It is easier to get an offer when you have a standing offer. People love to offer on homes with others that are interested.
2. Make sure you have the ability to Kick Out the contract and take another contract. Keep the # of days to as short a number as possible. Maybe charge a daily fee for an extension.

And whatever you do, don't have the agent that is listing the place you like, become the listing agent for YOUR house. Wow, that would be a nightmare. No matter what "deal" he offers you. You would never know who he is working for and you could lose far more money and sanity than saved in lower commissions.

Written by Frank Borges LL0SA- Broker FranklyRealty.com