Why You Should Almost Never Accept a Contingent Offer

By Home Bay

Posted on October 26th, 2014

There are standard offer contingencies in every real estate transaction, like your buyer's ability to inspect the property and to view the title report. Those contingencies are normal, but there's one contingency all sellers should be wary of. If you get an offer that's contingent on the sale of your buyer's home, you'll most likely want to pass. But why?

Why You Should Almost Never Accept a Contingent Offer

Cons of Accepting a Contingent Offer

The main reason you should hesitate to accept a contingent offer is because there's a lot of risk involved. Selling a home is challenging enough as it is. If you're also dependent on the sale of a second home owned by someone else, it makes the process a lot more stressful and unpredictable. Accepting these offers can also restrict your ability to market your home. Once you've accepted a contingent offer, most MLS boards require you to change the status of your listing from “active” to “pending” or “contingent.” Once you make this change, your listing will no longer show up on many home search sites. That means you won't be able to line up back-up buyers who can step in if things fall through.

Negotiating with Contingency Buyers

If you receive an offer where everything else looks great, ask the buyer to remove the sale contingency and replace it with a longer escrow so they have time to sell their property. With this setup, you get to keep the buyer's earnest money deposit to compensate you for lost marketing time if the buyer is unable to sell. If your buyer is reluctant to make that deal, it means they aren't willing to take a risk that their home won't sell, so why should you? In this case, it may be time to decline the offer all together.If you do decide to decline an offer, remember to do so politely and encourage the buyer to follow up with you once they've sold their home. If the market is hot and they sell quickly, there may still be an opportunity to strike a deal with no sale contingencies attached.

Exceptions to the Rule

All the above being said, sometimes offers with sale contingencies are acceptable. If the buyer already has their home in the late stages of escrow, you may want to consider accepting their offer. Just make clear in the contract that if your buyer's sale falls out of escrow, you have the right to terminate your escrow with them.

In another example, if your buyer's sale contingent offer is significantly better than any other offer you have, you may want to consider accepting it. Just make sure you're confident that the buyer's property is well priced and know your market to make sure there's an opportunity for it to sell quickly. Also, make sure the buyer spells out when they will list their home and what the list price will be in your offer.

Now that you understand the risks and stipulations associated with sale contingent offers, you can make an informed decision on whether you want to accept the offer or not. Have questions? Ask us! We're happy to help.

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