Should You Accept a Contingent Offer on Your Home?

Are you considering accepting a contingent offer on your home? It may seem like a promising step, but before you make that decision, let’s take a look at what to consider before signing on the dotted line.

The real estate market is different right now compared to recent years. The home that you are trying to sell may be sitting a little longer than expected depending on your location. But before you accept that contingent offer out of desperation, let’s make sure that you are equipped with all of the necessary facts to make a well-informed decision.

Let’s start with the basics. What is a contingent offer and why does it matter? Most home purchases have standard contingencies written into the purchase contract. Contingencies are conditions that must be met for the sale to proceed. These contingencies can vary based on the specific terms negotiated between the buyer and the seller. A few of the most common contingencies typically include:

1. Home Inspection Contingency: This allows the buyer to have a professional inspection of the property. If significant issues are found that the buyer is uncomfortable with or cannot negotiate with the seller to resolve, they may opt to back out of the contract or request repairs.

2. Financing Contingency: This contingency allows the buyer a specified period to secure financing for the property. If they are unable to obtain a mortgage loan within that timeframe, they can withdraw from the purchase without penalty.

3. Appraisal Contingency: This contingency protects the buyer by ensuring that the property appraises for at least the sale price. If the property appraises for less, the buyer may have the option to back out or negotiate with the seller for a lower price.

But the main contingency that we’re highlighting today is a sale contingency. Sometimes a buyer’s offer is contingent upon them selling their existing home. This clause allows them a specified period to sell their current property. If they fail to sell, they may withdraw from the contract.

The main advantage for the seller accepting this type of contingency is that (technically) their home stays on the market to show other buyers. This is the case if you move your home from ‘active’ status, meaning it’s actively listed on the market to ‘active with contingency’ or ‘bumpable’ status, meaning that you’ve accepted the contingent offer but would be open to other offers.

How exactly does that work for the seller? Ideally, the seller continues to have buyers view the home. Once another person makes an offer, the seller would notify buyer #1 that they have another offer in hand, and buyer #1 would have the option of removing their contingency or having to move on. It’s a win/win for the seller, right? Think again. There are several people (both buyers and buyer’s Realtors) who won’t view homes in ‘bumpable’ status. It can be perceived as being ‘messy’ or just plain bad karma.

The other issue is that even if folks are still willing to view bumpable homes, they may miss the home in the search engines. Third-party sites like Zillow or Redfin don’t include those homes when you plug in your search criteria when viewing their sites. You can see that the property is in ‘active with contingency’ or ‘bumpable’ status when you look for the specific address, but not with the general search. The bottom line, your home won’t get the same exposure that it normally would should you accept the contingent offer.

What are the other main risks of accepting an offer contingent on the buyer’s home selling? Those risks include:

1. Potential Delays: If the buyer’s home doesn’t sell within the specified timeframe, it could delay the sale of your property. This delay might cause inconvenience, especially if you have plans or deadlines tied to selling your home.

2. Uncertainty: There’s inherent uncertainty when the sale of your home depends on someone else’s property sale. The buyer’s sale might encounter issues or take longer than expected, leaving you in limbo or needing to relist your property if the deal falls through.

3. Lower Offers: Buyers making contingent offers might propose a lower price since their purchase is contingent upon them selling their home. They may negotiate for a lower price to minimize their risk, which could potentially impact your earnings from the sale.

4. Risk of Buyer’s Back-Out: Even with a contingent offer, there’s a chance the buyer might back out if they change their mind or find another property they prefer. This could leave you back at square one, having lost valuable time in the selling process.

5. Complexity and Stress: Juggling the sale of your home while contingent on another sale adds complexity and stress to the process. You might feel pressured or anxious about the uncertain outcome, impacting your plans and decision-making.

It’s essential to carefully evaluate the buyer’s situation, their likelihood of selling their property, and the terms of the contingency to mitigate these risks. Working closely with your real estate agent and considering backup plans can help manage potential downsides associated with accepting an offer contingent on the buyer’s home selling.

I hope you found this information helpful. I’d love to hear from you. Feel free to contact me with any questions.