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Contingent Offers

J. Andrew English J. Andrew English

What is a contingent offer? A contingent offer is an offer that contains some sort of contingency during the escrow period. This contingency needs to be released in order for the home to close escrow. Common examples can include, appraisals, lender approval, inspections, etc… These are all examples of very common contingencies that you see on an every day basis.

Typically, questions arise when an offer is contingent upon the sale of the buyer’s property. For the sake of this entry, I want to focus on this specific contingency. First – what does this mean exactly? The buyer is attempting to purchase your home, however, they must first complete the sale of their property in order to purchase your home.

As a seller, what do I need to know?

1) You have little to zero control over your buyer’s transaction. If the buyer’s buyer defaults, your sale is gone. ¬†You are reliant upon something/somebody whom you have zero control over. (and many times zero interaction with)

2) Your property will be marked as contingent in the MLS. The problem here is that many brokers will only show active properties to their prospective clients. Thus, even if you are accepting back up offers, your showings will decrease greatly by having a contingent status listed.

3) You always want to have an “out” clause or a time table listed in your contingent offer for exiting the offer. For example, if you accept a contingent offer, give your buyer 30 or 60 days to close on your home from the time you accept the offer. Never leave this open ended. If the buyer can not close during this time frame, give yourself the option to cancel the contract at no penalty to yourself.

4) Understand that accepting a contingent offer where your buyer’s home is not under contract is extremely risky. If the buyer’s property is under contract, ask to review their contract prior to agreeing to anything. Review their buyer’s pre-approval, etc… Judge the strength of their offer.

5) If you do accept a contingent offer, follow up constantly with your buyer. Put pressure on your buyer to stay on top of their buyer at all times.

 

When should I consider a contingent offer?

As a seller, if I accept a contingent offer, I had better be getting something in return for the risk I am taking for pulling my property out of active status. Typically, this means I am pursuing the price and terms that make it worth the risk to me. Secondly, I personally would not accept a contingent offer from a buyer who’s property is not already in escrow unless the potential reward is enormous. (and I don’t mind the risk)

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