The slow Real Estate market is bringing back contingent offers. Here are the pros and cons.

By
Education & Training with Network Funding LP NMLS #116235

Contingent offers and why they are making a comeback.

During the strong sellers' market of recent years, contingencies were rare because buyers were confident they could sell before closing on their next home. Times have changed due to a slower real estate market.

What are Contingent offers???..... A contingency in a purchase contract is a condition that must be satisfied for the sale to go through. With a contingent-sale offer, the deal is not complete until the buyer's home is sold. If the buyer's home doesn't sell, the buyers are usually released from the contract without penalty and the seller's home goes back on the market.

Buyers, sellers should weigh out all options before making or accepting contingencies

Contingencies have become a new way of life for buyers and sellers in today's challenging housing market. Buyers don't want to take a chance getting stuck with two mortgages, and eager sellers are more willing to accept any offer, even if it includes a contingency.

Contingencies, however, are a gray area in the negotiating process, so both buyers and sellers should weigh their options before making or accepting them.

"Be very cautious and thoughtful about offers that are contingent,"

Seller's pros and cons

The pros

• The market doesn't have as many buyers as it does sellers, so if you get an interested buyer, it might be wise to try to make it work.

• You're more likely to get a full-price offer from a buyer who wants to make up for an unattractive contingency.

• Typically, there's nothing about a contingent offer that prevents you from accepting other offers while you're waiting for the would-be buyer's house to sell. This could start a bidding war and could result in a higher offer.

• You have the upper hand. "How much can a buyer really negotiate because - let's face it - they don't even have their home sold.

The cons

• Contingent offers must be disclosed to other interested buyers and that can decrease activity. Buyers have so many choices in this market that they don't want to waste their time in a bidding war.

• You have to guess how long it will take for the buyers to sell their home. If they're not able to sell by the time the contract expires, then you're back at square one.

Buyer's pros and cons

The pros

• You eliminate the risk of paying for two mortgages should you not sell your current house in time.

• The contingent offer could motivate you to do things to get your house sold that you wouldn't normally do.

• When buying a newly constructed home, writing a contingent offer could lock in an incentive or a special introductory price.

• If another offer is made while you're still trying to sell your house, typically, you'll get the first chance to sweeten the offer by lifting the contingency or raising your price.

The cons

• Because your offer is contingent on the sale of your house, you lose a lot of leverage and only gain an option to buy the house.

• Some sellers won't consider a contingent offer.

• If the home is attractive to first-time buyers, chances are good that the sellers will get a non-contingent offer from someone who is renting and doesn't have a home to sell first.

• Someone else can make a better offer at any time and you'll lose the house. This can be emotional, as buyers often get their hearts set on a home that they don't yet own.

Comments (2)

Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
I tell me sellers never to take a contingent offer. If the buyer wants to put down a 5% non-refundable earnest money, then if they want the buyer can set the closing date out six months with no extensions. This usually gets the buyers to either buck up and buy it or walk away. I’ve heard of a couple other agents here using that and it working wonderfully.
Oct 08, 2007 05:12 PM
Christopher Ohlsen
Credit Werx, LLC. - Malone, NY
I have seen a bit of this recently. I haven't run accross this specific contigency, but i have run across a few deals that were contigent upon improvements being made to the home prior to closing the deal.
Oct 09, 2007 07:25 AM

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