Question: Should I accept an offer on my home that is contingent on the buyer selling his home first?
Answer: While there are financing options and other strategies to help buyers avoid home sale contingencies, they’re oftentimes necessary to close a deal. Before you accept an offer that includes a home sale contingency, you should consider the following factors:
Which Home Sale Contingency?
1) Sale of Buyer’s Property with Kick-Out:
This is used when a buyer’s property does not have a pending contract and can be used even if the property isn’t yet listed for sale. It includes a deadline for the buyer to go under contract, terms of the listing (when it will be listed and for how much), and most importantly, it allows you to “kick-out” the buyer, with notice, to accept another offer or put the home back on the market as Active. This is a high-risk contingency for sellers.
2) Settlement of Buyer’s Property (no kick-out):
This is used when the buyer’s home is under contract and pending settlement. Depending on the terms of the contract on the buyer’s home, this can be a fairly low risk contingency for sellers.
If contingency #1 above is used, you have the ability to continue marketing your home for sale and accept back-up offers from other buyers. If you receive a better offer, you can “kick-out” the current buyer unless they can provide proof of a ratified contract on their home or proof they can purchase the home without first selling their home. You will negotiate the number of days the buyer has to meet one of these requirements, once you’ve given notice, so it’s in your best interest to keep the number as low as possible.
Review All Relevant Data
If contingency #1 above is used, you and your agent should conduct a full market analysis of the home the buyer is trying to sell to determine the likelihood that it sells in a timely manner at the price it’s being offer for. If you learn the home is in a market with average days on market of 100+ days and the buyer is offering it at a price above market value, you have a bad offer.
If contingency #2 above is used, you’ll want to review the terms of the ratified contract your buyer has to determine what contingencies still exist. If all contingencies have expired and a substantial Earnest Money Deposit has been made, you can proceed with confidence. However, I’ve seen offers made where the buyer’s ratified contract includes a home sale contingency itself for the buyer of that property, meaning my client had to rely on two homes to sell before his home could sell…bad offer.
Days On Market
You should also assess where you are in your sale cycle. If you’re in the first 30 days of your listing, you should hold out for strong offers and avoid a risky home sale contingency. Just like you wouldn’t normally accept a deep reduction from the asking price in the first 30 days, you should also push for strong supporting terms.
If you’re considering accepting an offer that includes a home sale contingency, work hard to negotiate favorable terms elsewhere, especially price. You deserve to be compensated for the additional risk a home sale contingency presents.
Before accepting an offer with a home sale contingency, you and your agent should work with the buyer and buyer’s agent to explore strategies that allow the buyer to qualify for the purchase without first selling their home. Often, it’s more feasible than buyers realize.