Let’s talk about something we don’t hear much about these days.
The Contingent Offer: (Insert Ominous Tones Here…)
An offer that involves “contingent funds” is an offer that requires down-payment or loan funds that are dependent upon certain events or conditions: Buyers have to qualify for the loan, therefore their funds to purchase the home are contingent upon the Buyers’ ability to get the loan; Buyers’ down-payment may be coming from a relative or an investment and the relative, or investment, has yet to make the funds available to the Buyers for one reason or another – these are contingent funds.
Most offers involve contingent funds in one form or another. If the Buyer is paying all cash, and no part of the money being used to purchase the property is tied up, in any way, in underwriting, in an investment that hasn’t matured yet, in grandma’s bank account – those all-cash funds are non-contingent funds.
A Contingent Offer, however, means the entire offer being presented to the Sellers of a property depends on certain conditions being met. The most common of these conditions is that the Buyers’ home must sell before they will have the funds with which to purchase the house they are making the contingent offer to purchase: “…we need to sell our house before we can buy your house.”
Many agents will not write contingent offers for their Buyers, and for good reason. They’re risky, they’re tough to get accepted, and the likelihood they’ll fall apart completely is much higher than it is with a non-contingent offer.
I will write contingent offers for my Buyers as long as a few important things are clearly understood.
1. When making a contingent offer on a home, Buyers must make their offer good enough to compel the Sellers to take their home off the market for a specified period of time to allow the Buyers enough time to sell their own home. “Good Enough” is as subjective as you can imagine. But one of the places to start is price. One way to make the offer to purchase as strong as possible is to raise the purchase price above what the offer price would be if the Buyers were making a non-contingent offer. Remember, it’s about making the offer strong enough that the Sellers will be compelled to suspend their efforts to sell their home and wait. This means Buyers making a contingent offer have to be willing to pay more on the buying-end to get the home they want.
2. Buyers making a contingent offer on a home will need to act aggressively to sell their own home. This means they will not be in a position to wait until a better offer comes along. This is because Buyers will have to price their own home aggressively to compel the Sellers of the home the Buyers want to work with the Buyers and accept their contingent offer. And this means Buyers may have to sell their existing home for less than they would otherwise accept.
3. The Buyers who have made a contingent offer will have to work quickly, decisively, and aggressively to sell their home – no playing around. This means Buyers who are selling their home to meet the obligations under their contingent offer, may experience more life-interruptions than they otherwise would if they were selling and not in a hurry. If Tommy is sick and there is a showing scheduled, Tommy might need to go to Grandma’s while the house is shown. Motivation is key.
4. There is a high likelihood the Listing Agent (LA) of the house the Buyers wish to buy, when their funds become available, will counsel the Sellers who are considering the contingent offer, to insert what is commonly referred to as a “Bump Clause.” The Bump Clause enables the Sellers to give notice to contingent Buyers that they have received another offer and that the Buyers who have made the contingent offer have a specified amount of time to show proof of funds to purchase the home (usually 48-72 hours). IN other words, “We’ve received another offer. You have 48 hours to show us proof that you can begin the purchase.”
5. The Listing Agent of the home may also ask that the earnest money be non-refundable to cover the cost of taking the house off the market for a specified period of time. This means that if things don’t work out, and the Buyers cannot sell their house in enough time to complete the contract with the Sellers, the Buyers forfeit their earnest money and that money will be paid to the Sellers to cover their time off the market.
Summary: Buyers wishing to make contingent offers may lose money on their purchase because they are in a weak bargaining position. They are literally offering to purchase the house with money they may or may not receive. The Buyers will likely lose money on the sale of their current home because they will not have the time to negotiate and/or wait for a better offer. And they will very likely experience a greater degree of life-interruption because they will need to market their home very aggressively to meet the contractual obligations of their contingent offer.
However, and this is a big ‘however,’ the Sellers considering a contingent offer may stand to get more for their properties than they otherwise would which is great for the Sellers, if the Buyers are fine with the potential to lose a few thousand on the Buying-end and a few thousand on the Selling-end to get the house they really, really want and AVOID two moves (especially with interest rates being as low as they currently are), the Buyers are working with a lender and the lender assures us all that the Buyers will qualify for the purchase as soon as the Buyers sell their current home, annnnnd, the Buyers act very deliberately and aggressively to sell their current home…
I WILL WRITE CONTINGENT OFFERS FOR THESE BUYERS ALL DAY LONG.
Yes I will! These are some of my favorite Buyers!
I get it! They don’t want to put their home on the market until they find something they really love so they know they will find something they can really love, they don’t want to move twice to get their next home, they just want to buy their forever home and they are a-okay spending a little more to avoid the months long drama.
The Buyer’s chances are particularly enhanced if they are selling their current home in a ‘warmer’ market than the market into which they are buying. For example: if they are selling a home in Inner NW Portland and buying a home in Lake Oswego.
If you think this is a strategy that might work for you, call me!
Amy Munsey, (971)258-5500 or email me at firstname.lastname@example.org and we’ll chat about your next adventure!
I am a licensed Oregon Real Estate Broker with Keller Williams Realty Professionals.