Many times a buyer needs to sell their home prior to purchasing a new home. An offer contingent on the sale of a home simply means that the buyer must sell their home in order to have the financial ability to purchase. If for any reason the contingent property does fall through, the buyer can elect to cancel the contract and receive their earnest money back.
There are two type of contingency to sell, this can be a slightly confusing explanation so make sure to take your time, even write down notes if needed. The first being an open contingency where the buyer does not have an accepted offer on their contingent home yet. This does cause a bit of a catch 22, most sellers will not accept an offer prior from a buyer still needing an accepted offer on their contingent property. Its creates a “If this, then that situation.” There is no certainty, nor even a specific closing date so it can be hard for a seller to lock up their property based on a what if. The biggest resolution to this is communication. The buyer should be open and honest with the seller, let them know you are listing your home, you expect to sell quickly, and every time you have a potential offer, check in with the seller of the home you want to keep them updated. And visa versa, the seller should notify the buyer if they end up with an offer they are thinking of accepting prior to the buyer having an offer on their contingent property. It sounds confusing, and sometimes it can be, that is why communication is key. Being as clear and concise and even agreeing to terms prior to starting the whole process is a good idea here. First right of refusals often come into play here where you agree to terms, but the seller continues to market their home until the contingent property receives an offer. If the seller gets a better offer before the contingent property has an offer, the buyer has to at least match or beat that better offer (which includes potentially removing the contingency) or release their hold on the property. Lots to juggle when dealing with a contingency, however, the advantage to starting this whole process is when someone lists their home, that’s actually not the big scary moment. You are never obligated to sell, even if someone comes in offer full asking price or more, until you sign on the dotted line of the contract. So before you do formally accept or respond, if you have a property you are interested in buying, contact the seller of that property, get your offer accepted in writing, and then formally obligate yourself to sell by accepting your buyers offer. Remember, if you counter offer in writing, and the buyers accepts, this also immediately creates a contract, so before even responding officially to your offer, make sure the sellers on the property you want lines up with your similar closing dates, pricing, everything. You will need the contingent property to close on the same day or before the closing of the second property. Verbal communication and even offer acceptance, are not official until they are signed by all parties on the dotted line and in writing.
The more clear cut contingent offer is one that the contingent property already has an accepted offer. The easiest way to handle this is while your home is listed, constantly save homes in your favorites. Keep watching every day, and keep saving. Have your prequalification letter from your lender ready to go, and make sure your lender knows the situation so they are on standby and ready for you. So the moment you do receive an offer, you can immediately start your search. Most commonly when an offer comes in, there is approximately a 30 day escrow, which is the time period from when you accept an offer until you officially close. To give yourself time to find a home, request that the escrow period be “on or before 60 days.” Explain to the buyer that you need to find a home and if you find one in the first weekend, you can close earlier, but if you don’t, you need a slight cushion to find a property. Just know the risks involved in this, if you accept an offer, you are now contractually obligated to perform. So if you don’t find a home in that 60 days, or whichever closing day you agree to, you will need to be out of the home regardless if you find a home or not. The saving grace here is an airbnb and storage. Many moving companies can offer a “twice move” where they store your items for you and then move into the new home. This can typically be avoided by following the steps above, but always look at absolute worst case scenarios and make sure you are comfortable with them prior to becoming contractually obligated.
Lastly, as a seller, don’t be afraid of contingencies. These actually can work to everyones advantage. The buyer is now contractually obligated to sell their home which at the end of the day, makes it that much less likely that they are going to nit pick and cancel on your home. Because if they cancel, they themselves have no where to go. You don’t want to strong arm buyers with this, but it does allow the seller to know that their buyer is very serious about moving forward. So again, communication in these scenarios is key. Feel free to ask for the contingent property contract and prequalification letter. Call the lender of the contingent properties buyer, Don’t be afraid to ask questions, create a group chat with all parties, get answers in writing, and make sure everyone is following the timeline for expected closing date.