When you hear a Realtor talk about a “contingent offer,” they are most likely referring to an offer that is contingent on the sale of a buyer’s property. Technically speaking, nearly all offers for the purchase of real property are contingent offers. The most common contingencies are for inspections and loans. These contingencies protect the buyer if the property no longer suits their needs, or they are unable to attain financing to complete the sale. The type of contingent offer we are discussing today is one that is contingent on the sale of the buyer’s property.
The majority of contingent offers are submitted when YOU, the buyer of a subject property, require the proceeds from the sale of your current house in order to close on the subject property. This type of offer is most commonly used by buyers that do not qualify to carry two or more mortgages or need the equity in their current homes for a down payment. Contingent offers enable buyers to more seamlessly transfer from one home to another. Rent backs are another way to ease this transition.
There are three major points to consider when deciding how to write your contingency:
Length of Contingency.
You can have the length of the contingency equal to the length of the escrow for the seller’s property (as specified in your offer) or you can specify a specific number of days.
Sale Status of Your Property.
If your property is not yet in escrow, you need to specify the amount of time it should take to accept an offer and open escrow. The contract standard is 17 days, so it is generally a good idea to get your home listed BEFORE you submit a contingent offer. If your property is in escrow, then you will need to provide proof of such escrow and an estimated closing date.
Seller’s Right to Accept Backups.
The third and potentially most important point to consider when writing a contingent offer is the seller’s right to accept backup offers. The seller will have the right to accept offers in the backup position, but you can offer the seller two options: First, if the seller receives an acceptable backup offer, the seller can have the right to require the buyer to immediately remove all contingencies. The second way to write the contingency is to delay the seller’s right to notify you, and specify a time period that you have before the seller may require the buyer to remove the sale contingency.
So, we know that the advantages of submitting a contingent offer, but why aren’t more offers written this way? The simple answer is that contingent offers are much more favorable to buyers than they are sellers. In every transaction, there are variables and hurdles that could ruin an escrow if handled poorly. So, when you then have two transactions running at once, there are double the things that can go wrong. The seller will have less surety of close and it can take much longer than a non-contingent offer. But don’t throw this option out the window yet, because we have a post on how to get your contingent offer accepted.