Whether or Not to Take a Home Sale Contingent Contract When Selling
Whenever a seller puts their home on the market, the best outcome is to get an offer from a buyer that has as few contingencies as possible. However, when you have a larger home in an area where buyers may have a home to sell before they can purchase yours, you may have some tough decisions to make. That move up buyer may present an offer on your home that has a home sale contingency. What do you do with one of those?
If your agent's advice is, "Under no circumstances should you tie yourself to the sale of someone else's home," well, you may want to consider this story that happened in my own career.
Representing buyers who had a home to sell recently, I was actively listing their townhouse for sale when, during a home tour, they saw a property that they wanted. We wrote an offer with a home sale contingency since the buyers didn't qualify for their desired financing without selling first. Simple. Unfortunately, the listing agent advised her sellers not to take a home sale contingent contract.
My buyers' offer had been very strong. I told them, if they wanted the seller to entertain their home sale contingent contract, they needed to go in at full list price. They did, but also need some closing help. They didn't ask for all they could, but $10K. On a $500K home, that's only 2% of the sales price.
So when the listing agent came back with an outright rejection and told us to try again without the home sale contingency, I sat down with my buyers. They qualified with a different loan without selling. However, they lowered their offer price and increased the closing cost help. The net loss to the sellers was $5K. More importantly, they asked for a much longer home inspection contingency (three times longer.) This is what I call a clue. The buyers still wanted time to sell their home and have an out. And since they asked for the home sale contingency outright to begin with, it shouldn't have come as a great shock when the buyers voided their contract a month later after the home inspection. Their townhouse still had not gone under contract.
Fast forward a few weeks and the buyers' home is under contract and that same home is still available. They choose to look around and see if there is anything else that has come up in the meantime. Sure enough, there was. They ended up buying another home and the original home they were under contract to buy is still sitting on the market and priced below the second offer my buyers made.
Moral of the story is this: Not all home sale contingent offers are bad. Your listing agent should evaluate the likelihood of the buyer's property going under contract at the list price, given current market conditions. In the case above, the net result would have been a successful settlement at a good price. The property my buyers had to sell was priced right and in a good location. Instead, the sellers' unwillingness, at the listing agent's advice, to consider a home sale contingent offer landed them in a very unfavorable situation. They are holding onto a property much longer than they wanted to and listed now for far less than they actually had staring them in the face in a home sale contingent contract.
Not all home sale contingencies are going to be winners, but it isn't rocket science to figure out which ones are less risky than others.