People throw the term “contingent offer” around and I understand why they do it but I want to be a little more specific because there are really two different types of contingencies. There are the standard contingencies (inspection, finance, etc.) and there is what we’ll call the sale contingency – is your offer contingent on the sale of another property?
What are sale contingencies?
When you’re making an offer do you need to sell your current home in order to buy the home you’re offering on or can you buy the home before you sell your current home? If you’re not going to buy a seller’s house unless your current home is sold then the seller is understanding that if something happens to the sale of your home, something happens to theirs too. Maybe that is fine but know that if you’re in a competing offer situation and your competition is someone who doesn’t have a sale contingency, you’re going to be at a disadvantage. This is why sale contingencies are important to keep in mind as we talk about the zero vs. two house conversation from my last blog post.
What a seller likes to see is a buyer offering a non-contingent offer – you don’t have to sell another property before you buy theirs. This will make your offer more competitive because the seller isn’t taking on any of the risk from an underlying transaction.
Contingent upon closing
The next level is contingent upon the close of another property. This means that you have a house that you need to sell but it’s already under contract. If you think back to the pressure points for the seller, there’s still a level of risk to the seller but you can at least tell them it’s not as much risk as they think because the house is already under contract and they’ve already done inspections. This is much easier to sell than if it just went under contract yesterday. The deeper you get into that transaction, the less risk there is for the seller on the home you want to buy.
Contingent upon the sale and closing
The final level is contingent upon both the sale and the close. This would be if you put an offer on a home and your current home isn’t on the market or under contract. This is nothing, really, because the seller is still able to take other offers. If the contract is contingent upon both the sale and the close then it is not binding on the seller at all. I really discourage people from going this direction unless it’s a really specialty house that we don’t think anybody else would like for a specific reason. Occasionally we can convince the seller to give us 3 or 4 days to try to sell your current home but they’re often not very willing so it becomes a race to the finish line. We want to bear this in mind.
If you have to sell first before you can buy, you want to be under contract before you’re shopping otherwise your offers are effectively meaningless.