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Everything You Need to Know About a Contingency

EVERYTHING YOU NEED TO KNOW ABOUT A CONTINGENCY

Buying a house can be stressful. Selling a housing can be stressful. Doing both at the same time can be realllly stressful. But it doesn’t have to be. Having the right agent to walk you through step-by-step can make all the difference in the world. Knowing exactly how the process works can help ease your fear and help to prepare you for what comes next. Here is everything you need to know about a contingency.

A CONTINGENCY… WHAT IS IT?

This is the most common way that buyers purchase a home when they need to sell their current home first. It’s created by using a document called the Addendum for Sale of Other Property by Buyer, but most often referred to as “a contingency”. Most buyer need the funds from their home sale to use as a down payment on the new house that they’re purchasing.

With a contingency, you can make an offer to a purchase a home that is  contingent on selling your current home first. If the seller accepts your offer, you are officially under contract to purchase, but can back out if your home does not end up selling under the terms of the contingency. The terms of the contingency are completely negotiable between the buyer and seller.

From the Addendum for Sale of Other Property by Buyer

You’ll need to agree on a date by which you must sell your current home. You’ll want to choose a date that gives a reasonable amount of time to sell your home. If you don’t sell by this date, the contract will terminate automatically and the earnest money will be refunded to the buyer.

*** IMPORTANT TO KNOW: THE SELLER CAN STILL RECEIVE OTHER OFFERS

When a seller accepts your contingency offer, you are officially under contract. The seller is committed to selling the home to you if you satisfy all of the terms, but with one very important caveat. The seller may still receive other offers from other buyers.

From the Addendum for Sale of Other Property by Buyer

They cannot automatically accept another offer and terminate your contract though. They must notify you first, and give you the agreed upon number of days to decide how to move forward. The number of days for this decision is completely negotiable, but 2-3 days is typical.

Your options for moving forward are:

  • Waive the contingency and move forward with the purchase. Waving the contingency would mean that you are obligated to purchase the home whether or not your current home sells. Sometimes buyers decide to waive the contingency if their first home is under contract but just hasn’t closed yet. If you do waive the contingency and your home doesn’t end up selling, you won’t be entitled to a refund of your earnest money if the sole reason for not closing is that your home did not sell.

From the Addendum for Sale of Other Property by Buyer

  • Terminate the contract. If you do not feel confident that your home will sell in time, and/or if you do not want to take the risk of eventually losing your earnest money, you can agree to terminate the contract now. The seller can move forward with their new offer, and you’ll receive a refund of your earnest money.

DEPOSITING ADDITIONAL EARNEST MONEY

If the seller does receive another offer and you choose to waive your contingency and move forward, you’ll deposit additional earnest money.

From the Addendum for Sale of Other Property by Buyer

The reason for depositing additional earnest money is to prove to the seller your good faith intention to purchase the home even though yours has not sold yet. The amount of the additional earnest money is negotiable. Keep in mind that when you make a contingency offer, you are not obligated at the time of the offer to pay the extra earnest money. You’re just giving yourself the option to if the seller happens to receive a new offer.

GET THE TIMING RIGHT FOR A SMOOTH TRANSITION

Do you have flexibility around moving and closing dates? Do you need to move straight from your current home into the new home? Our agents will help you structure a timeline to make your move as seamless as possible. Clients often close on both homes on the same day. If you need time to move, we can negotiate a Seller’s Temporary Residential Lease, which could give you additional time after selling your home to move into the new one.

MAKING YOUR CONTINGENCY OFFER MORE APPEALING TO A SELLER

A seller may prefer an offer that is a sure deal over one with a contingency, but contingencies are not at all uncommon. It’s important that your agent go over all of the details to help you make an informed decision about how aggressive your offer needs to be. Here are some things our agents will explore with you:

Is your home on the market yet? Your contingency offer will be much more attractive if your home is already on the market when you make your offer. If it’s not, taking time to prepare and list your home can eat into the seller’s timeline to close.

Has the home that you’re interested in making an offer on been on the market very long?If it’s been on the market for a long time, the seller may be more willing to accept a contingency. You may not need to be as aggressive with your offer. If it’s a brand new listing with lots of interest, you may need to consider being more aggressive with price and other negotiable terms.

Is your home in an area with high demand?If so, our agents will provide market data and demonstrate to the seller that your home is likely to sell quickly, making it easier for them to accept your contingency.

Are you pricing your home reasonably?You want to get top dollar for your home, of course, but it’s important not to overprice your listing. You’ll want to sell your home by the contingency deadline, and you’ll also want to demonstrate to the sellers that you are serious and motivated to sell to be able to purchase theirs. Our agents will provide you with market data to help determine the best pricing strategy for your home.

Interested in learning about alternatives to buying with a contingency? Check out WHAT TO DO WITH YOUR HOME WHEN YOU’RE BUYING A NEW ONE?

 

We know that buying and selling a home with a contingency can seem like a real challenge, but our agents make sure that you know and understand all the many options available to you.  We’ll help you choose the best solution for you and your family. To speak to one of our agents, give us a call at (281) 691-6177 or send us an email at [email protected].

 

*BONUS: SAVE ON YOUR LISTING

We’ll list your existing home for sale and save you thousands of dollars in commission with our full service, flat fee pricing model. See SELLER SAVINGS to learn more.

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