As a seller, there are several different contingencies buyers might throw at you but one of the most common is an offer contingent upon the sale of their home.
If you as a seller receive a contingent offer, at the bare minimum, the buyer’s house should be listed in the MLS. You should ask your agent to put together a CMA (comparative market analysis) for the potential buyer’s house. Is their house priced aggressively? Are homes selling in their neighborhood? Are homes selling in their price range? Your agent should also request information about the number of showings the potential buyers have had and what kind of feedback they’re getting. The last thing you want to do is accept the contingent offer if the buyer’s house has no chance of selling.
If you decide to accept the contingent offer, make sure the offer gives a specific date for the sale of the buyer’s home AND the closing date for the sale of your home. You might decide to give them 30 days to find a buyer, and another 30 days to close once they do. You can state that the closing of your home will occur 30 days after the close of theirs. If there hasn’t been a lot of interest in your home during those first 30 days, you can give them an extension.
You’ll also want to include a First Right of Refusal, or a release clause. This will allow you to continue to market your home for sale and accept another offer in a backup position. If another offer comes in, the first buyer then has 24-72 hours (depending on how you structured it) to decide whether or not to move forward with the purchase of your home. If they do not release the contingency, you can cancel the deal with them and accept the second offer. If they do release their contingency, you must move forward and sell your house to them. This is where accepting a contingent offer can make you kick yourself. Let’s say the second offer is a higher price and they can close quickly. If the first buyer agrees to move forward with the purchase of your home even without having sold theirs, you must sell to that first buyer.
Make sure the buyer agrees to allow you to continue marketing your house for sale. I have heard of buyers requesting the seller withdraw the home from the MLS. This is not advisable. If the prospective buyer can’t sell their house, you’ve essentially taken your home off the market during the contingency period and possibly missed other buyers.
It’s a good idea to ask the buyer to release the other contingencies typically found in the contract (like the home inspection and loan contingencies) early on. Urge them to get the home inspection done right away and negotiate any needed repairs. There’s nothing worse than waiting 3 months for the buyer’s home to sell, having a home inspection done, and finding out that they buyer is not happy with the report and does not want to purchase your house after all. Get the home inspection done within the first couple of weeks so there are no surprises down the road. Even if the contingent buyer can’t sell their home and purchase yours, you’ll be ahead of the game with the next buyer because you’ll have already completed the repairs.
One positive aspect of contingent offers is that the buyer usually writes a strong offer otherwise. They may offer more for your house than a buyer without a contingency because they know you’re not going to be excited about the contingency. They will try to make it up to you by offering full price, or very close to it.
While a contingent offer is definitely not ideal, they can be structured to minimize the risks. Knowing that you can still market your home to other prospective buyers and accept offers can really motivate the buyer to get their home sold.