Types of Contingent Offers
What to do when you have to sell before you buy
It is the ultimate real estate catch 22. You have found your dream home after months of searching, but you will need to sell the house you live in to get it. Historically, homebuyers have had time to find a new home, make a contingent offer, and have a few days to get their current house cleaned up and ready for showings. Among other factors record low-interest rates, a global health crisis, and general economic uncertainty have resulted in homes selling within hours of being listed and often receiving multiple offers.
This means that many sellers are having to choose between a buyer that is ready to purchase today or a buyer that will have to wait for their old house to sell before they can purchase. And if the seller on your dream house needs to sell that dream house in order to buy their dream house, and chances are they aren’t too excited to wait for your house to sell first. So what is the best way to proceed? First I would suggest contacting a local real estate professional to get an idea of your specific circumstances and options. But if you aren’t quite ready for that a quick explanation of the types of contingent offers is a good place to start. Here is a quick look at the two most common types of contingent offers in our area.
- Traditional Contingent offer: A traditional contingent offer is an offer to purchase that is dependent upon the buyer’s currently pending transaction closing. That “currently pending” bit is the important part here. In order for a purchase agreement to be contingent, most states will require the buyer’s property to be currently under contract and some will even require the buyer to provide the seller with pertinent information about the contingent transaction including the closing date and how far they are in the sale process. Even if your state doesn’t require this a good real estate professional should be comfortable asking these questions so that all parties are clear on the timeline and possible issues that could arise.
- First Right of Refusal: A First Right of Refusal offer is an offer to purchase that is dependent on the buyer’s current home being listed for sale and then getting an accepted contract. This is the type of offer that most homebuyers feel most comfortable with. Typically the offer specifically addresses how soon the buyer’s property will be listed for sale and how long they have to get an accepted offer. During this time the house usually stays active on the market and the seller is welcome to have showings and even receive and negotiate offers. While most buyers prefer to write a first right of refusal offer, few sellers are comfortable accepting them. Oftentimes the seller has already gotten an accepted offer on their next home and simply can’t spend the extra days waiting for their buyer to wait for a buyer.
So what's the best course of action? Timing is everything. Talk to your agent early and often. Be sure that your agent asks the right types of questions to determine which type of offer best suits your timeline and your specific situation, both as a buyer and a seller. They may be able to provide you with an outside-of-the-box solution that you may not have considered. For instance, some states allow a seller to advertise that they will not accept any offers until they have found a home to purchase. Some more tech-friendly sellers might prefer a cutting-edge iBuyer program that involves a company to purchase their house online remotely, allowing them to move on to their next home more quickly. Ultimately, what is most important in every real estate transaction is being aware of all of your options and having a trusted professional that knows what is most important for your family and your specific circumstances.