So, you have your home on the market and you received a contingent offer. Should you accept it?
That’s a tricky one. There are so many factors to consider when you receive an offer, and contingencies can be a confusing issue
I’m going to give you five questions you need to ask yourself when you receive a contingent offer to purchase your home. We’ll talk through a few different scenarios and by the end, you’ll have a clear picture of how to proceed, using your specific answers to these questions.
If this is your first time here, welcome! My name is Cori and I‘m a proud Marlboro resident and your local REALTOR® with Monmouth County Dream Homes powered by RE/MAX Central. If you’d like to stay up to date on all things Monmouth County, Real Estate and Marlboro Township you have come to the right place!
What is a ‘Contingent Offer’?
Before we jump in, I want to be very clear about what I mean when I say ‘Contingent Offer’. There are a number of contingencies that come into play when we talk about real estate transactions. They can include inspection contingencies, appraisal contingencies, loan contingencies, and so on.
For this video, when I say ‘contingent offer’, I‘m specifically referring to a situation where the Buyer wants to buy your home, but their purchase of your home is contingent on the sale of their current home. So they MUST sell their existing home in order to close the deal on your home.
This can get very VERY tricky
Now i’m sure we all know that real estate transactions can get pretty messy all on their own. Now we add in a contingent offer? We are basically combining two real estate transactions together and trying to also keep the timing of them both in sync. As you can imagine this adds even more complication to the transaction.
Be sure you understand what this all means
I”m not saying that I am opposed to buyers making contingent offers, or even against Sellers accepting contingent offers. My goal is just to make sure that all parties are entering into a deal with a complete and thorough understanding of the good, the bad, and the indifferent.
The Buyer Contingency Addendum
Thankfully, here in New Jersey , the Association of REALTORS® have put together a document called a Buyer Contingency Addendum. This two-page document was specially designed to protect buyers and sellers, where a contingent offer is involved. This document provides clear instructions on how the transaction will or will not proceed in a number of different circumstances.
I’ll make reference to Buyer Contingency Addendum throughout this video. If you would like a sample copy of the Buyer Contingency Addendum to read through, click here.
I wish I had a direct answer to give you on whether or not you should accept a contingent offer when you are selling your house, but the truth is there is no clear cut answer. It depends on so many factors. So I’m going to give you the tools to make an informed decision, but remember in the end it’s your decision to make.
Question #1: What Stage is your Buyer at in their Sale?
You need to know this right away and it may require some digging. This may be the most important question you ask.
- Is their home currently listed for sale?
- Do they have a lot of interest?
- Are they already under contract?
- If so, when is the closing date?
- Are their buyers through the inspection period?
- Are their Buyers paying cash or getting a loan? What type of loan? Were they pre-approved?
- Could they qualify for the loan without their home selling?
- Is their Buyer’s purchase contingent? That would make it so that three transactions are intertwined.
- Do they want to close on both homes on the same day?
If the Buyer hasn’t even put the home on the market yet you should be a bit more worried than if they already have an offer on their home and it’s set to close next week. No one can predict the future, so it’s really about discussing the possible risks that their sale will fall through. Ideally, you want their Buyers to be through their inspection period and well on their way to closing.
Are these Buyer’s worth taking a gamble on?
Whatever stage the Buyer is at, you need to understand it inside and out. You need to know what could go wrong, what could go right, and what the most likely outcome is. And trust me a LOT can go wrong, but sometimes these things work out just perfectly. Remember, if you accept this Buyers contingent offer, you are essentially taking your home off the market for them. You want to make sure they’re worth taking that gamble for. There is something called a kick out clause and i’ll touch upon that soon!
Get all the facts
First things, have a discussion with the agent bringing you the offer. They may be able to provide a good amount of information. Then, some additional information you will be able to get directly from the Buyer Contingency Addendum. The Buyer Contingency Addendum requires the Buyer to disclose if they have an accepted contract on their current home. If so, they’re required to deliver copies of the purchase documents to you with their offer.
Your REALTOR® needs to speak with the agents on both sides of their transaction to get the full picture. They should also be in contact with the Lender. You need to read and understand all of the documents provided.
If you have questions, now is the time to ask!
Communication is key
Communication is key when it comes to accepting a Contingent Offer. You need to be confident that you completely understand everything that is going on. Always remember, the further along the Buyer is in the sale of their current home, the better.
Question #2: How does your local market look?
Are you in a Buyer’s Market, a Seller’s Market, or a Balanced Market? If you’re in a Buyer’s market, you may be more willing to accept a contingent offer. On the other hand, if you’re in a strong Seller’s market, with limited supply and high demand, ( like we are currently in, here in Monmouth County, then you may be less inclined to take your home off the market for a contingent offer.
Question 3: What’s the Interest Level in your Home?
I want you think about how much activity you’ve had on your home, how long its been on the market, and what the showing feedback has been like. All of this should start to paint a picture, for you. If your home is very desirable with lots of interest, you may not need to even consider a Contingent Offer. On the other hand, if you’ve had little interest, or if the feedback hasn’t been great, you may be more inclined to accept a contingent offer.
Question #4: What does their offer even look like?
Okay, so we know that their offer is contingent on the sale of their home, but what does the rest of the offer look like?
- Are they making a good offer?
- Does the closing date work for you?
- Are they getting a loan or paying cash?
- Are they pre approved if obtaining a mortgage?
- Have they added any terms or conditions that make you uneasy?
Read the whole offer carefully with your agent, and make sure that you understand it inside and out.
If the offer looks really good on paper, with the exception of the contingency, you may be more inclined to accept it, or at least counter it. On the other hand, if the other terms aren’t all that great, you may have your answer. You may not want to accept this offer anyway!
Question #5: What happens if their Sale Falls Through?
Here are a few final questions you need to ask the agent and yourself:
- What will happen to you if their sale falls through?
- Will they be able to get another offer in place quickly?
- Will you wait for them?
- Will you put the house back on the market?
- Will they be able to remove their contingency?
- Are you in a hurry to move?
- Are you relying on the proceeds of this sale to buy your next home?
- Will you be buying your next home contingent on the sale of your current home?
Is your head spinning? I know I just threw a ton of information at you. I don’t want to overwhelm you, but I want you to be completely sure you understand how this entire process works.
Take your Time
I Know that this is not an easy decision to make. You don’t want to pass up an otherwise good offer, but you also don’t want to miss your chance at a much easier and simple transaction. In this situation I recommend writing out a pros and cons list, and reviewing it.
So, there you have it! What do you think? Are you ready to make the tough decision about whether or not you should accept a contingent offer on your home? Don’t forget to click here to grab your sample copy of the Buyer Contingency Addendum. Reading through that document, in combination with the questions we’ve discussed in this video, you should be in a good place to make a decision.
I’ll see YOU next Monday!