Understanding Contingent Offers for a House Sale
When you are in the middle of a house sale, you may find that you expand your vocabulary. Suddenly, offers and inspections and closing costs become part of your everyday language. When you are buying a house, what is a contingent offer, and what are its implications for both buyers and sellers?
Types of Contingent Offers
When most people are involved in a house sale, they are not in a position to pay cash for a home. They also likely have a home to sell, unless they are moving from a rental into their first home. If you have a home right now and you are looking for a new one, then you will likely need to give a contingent offer. Making a contingent offer basically means that you will buy the new property if you can sell your old one. This usually happens because you need the money from the old property to buy a new one.
There are other, shorter types of contingent offers as well. It is quite common to place restrictions on the home sale to protect the buyer. The buyer often makes a contingent offer in order to get time to complete a home inspection or appraisal prior to finalizing the sale. After the home is inspected or appraised and found to be sound and valuable, then the buyer will follow through with the deal.
When Do Contingent Offers Happen?
Contingent offers happen in many home sales, but they are much more common in buyers' markets. In these markets, a buyer has the luxury of setting some parameters around the home purchase. When the owner is highly motivated to sell, buyers can make sure that the house sale is relatively convenient for them. This adds some uncertainty for the seller, and it can increase the time spent waiting to sell the home.
Types of Contingent Offers
There are different types of contingent offers. In one case, the seller might accept the contingent offer and take the property off the market until the buyer sells his or her previous home. In the other case, the seller keeps the property on the market but gives the buyer the right of first refusal if another offer is made. Of course, this adds some potential problems for the buyer. If there are many potential buyers and another buyer comes in with a better offer, then the seller could accept the new offer rather than the existing one.
Giving Notice to Perform
What happens if the buyer who has made a contingent offer is waiting to sell his home and another family makes a better offer on the new home? If a home is for sale and the sellers receive a better offer, the prospective buyers will receive Notice to Perform. This means that they have a pre-negotiated amount of time in which to confirm their offer on the home. The buyer might need to turn down the possibility of purchasing the house if it is not possible to come up with the money in a short time period. In that case, the buyer would cancel the contract and money that had been given to the seller as earnest money would be refunded.
If the buyer wants to purchase the home but has not yet sold the previous home, buyers can do one of the following:
- Get a home equity line of credit and tap into it to provide a downpayment.
- Borrow the downpayment from others, such as friends or family. Your plan would be to pay this back immediately when your existing home sells.
- Get a bridge loan. Make sure that you are pre-approved for such a loan before you need it, as it may not be possible to get a loan like this on very short notice.
At Open for Homes, we want to see you have success in the world of home buying, selling, and tenancy. We will help you find the home that is right for you. Take a look at the blog at Open For Homes to help you navigate your many house sale questions.