I have a wonderful client who wants to move from the OC to the Balcony of Southern California- La Crescenta. She owns a home that is currently on the market for sale, but not yet sold. She can not buy until her home sells.
What does she do?
Here are her options:
1. Wait until her home sells and then find a home to buy. This means she might be in temporary housing.
2. Find a home before her home sells and make an offer contingent on the sale of her home.
Today we are going to discuss the second option- what happens if she makes a contingent offer?
What is a contingent offer?
An offer to purchase that can only be completed if the buyers current home sells and closes escrow.
For Buyers- the good and bad
The good seems pretty obvious. If the offer is accepted, the buyer knows where they are going and how much they are spending. They will avoid the inconvenience and expense of a double move and they can choose a house with out the pressure of time.
Sounds great, right?
Here’s the “bad”. The seller will see you as a high risk buyer. The sale of your home is completely outside of the seller’s control and they must trust that you are going to be able to sell your home. The only way they will take that risk is if a.) they have no other buyers and/or b.) they feel that you are offering a great (read this as high) offer.
So, what does this mean? You find the perfect house and you either can’t buy it or you will pay top, top, dollar for it.
For Sellers- the good and bad
Again, the good seems pretty obvious. Getting top, top, dollar in a down market is good. Also, if the buyer’s property is in a more popular price point than your home they should have an easier time of selling, right?
Then what is the bad?
Time. Even under the best conditions this transaction will take longer to complete and it is probable that it will take the maximum amount of time negotiated in the contract.
Control– or lack thereof. You have no control or influence over your buyer’s sale. There are dozens of ways to blow a sale- are they skilled enough to keep a deal together and close it?
Money– if the deal does not stay together you will need to go back on the market and find a new buyer. This is a down market and there is a reasonable risk that the next buyer will pay less than you want.
The “Happy” Medium
**Woopf!** When I spell it out like that it seems crazy for anyone to go with a contingent offer, right?
Real Estate, like any other business, is a game of calculated risk. If you don’t take this contingent offer, will a better buyer come along? Will this buyer come back to you, at this price, once they get their home sold?
There is no way to know for sure.
There is a way to hedge your bet, however. It is known as the “Kick Out” clause, and it allows the seller to continue marketing the home while in escrow with a contingent buyer. If a new buyer comes along, presumably non-contingent on the sale of a home, the seller can “Kick Out” the current buyer.
The current buyer still benefits because fewer people will consider offering on a home that is already in contract. Both buyer and seller get to feel like they have a “bird in the hand” while continuing to stalk the “2 birds in the bush”.
Three days after my buyers offer was accepted, she received a very nice offer that she was able to accept and move into escrow. While the La Crescenta home is still contingent upon the close of escrow, this is now a much more solid transaction.