The Ins & Outs of Sale Contingencies
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You've found a prime property for a good price, and you're ready to put in an offer. Before you hand over the money, there are a few things you may want to add to the purchase contract in order to protect your best interests. These additions are called contingencies, and are essentially loopholes in a contract that allows one or both parties to back out of the sale if requirements of the contract are not satisfied. While there are contingencies designed to benefit the seller, most contingencies in a real estate contract help the buyer. Many home sales are contingent on things such as home inspections, the appraisal of the house, and the buyer's ability to obtain financing. These contingencies are quite common, and are expected by sellers. A sale contingency on the other hand is one of the most controversial items you can ask for in a purchase contract. A sale contingency is a critical contract addition for a buyer who owns a house that he or she needs to sell before closing on a new one. If she doesn't add this provision to the contract, she faces the possibility of having to pay two mortgages. With a sale contingency in place, the contract for the new home becomes null and void if she is unable to sell her home. These contingencies are risky because many sellers won't even consider an offer with a stipulation like this in place. This is because they won't be able to close on their home until you sell yours. For sellers, sale contingencies offer a lot of risk, and not much benefit. In fact, in hot markets, a sale contingency will get your offer rejected outright. In today's market however, with much of the national market stalling, you have more room to negotiate. In order to make a contingent offer attractive to sellers, you need to prove to the seller that you're motivated to sell quickly. The first step is to negotiate a date when either the contract will be cancelled, or you'll close on the new house, regardless of whether you've sold your home or not. If the seller gives you a couple of months to sell your home, you are obligated to close on the new house or walk away from the deal entirely at the end of that time. This amendment balances the risk between both parties in a more fair way, and demonstrates a willingness to work with the seller to reach a suitable agreement. In addition to providing the sellers with an end date, you can prove your motivation to sell by listing your home immediately, and by pricing it according to fair market value. If your property is priced too high, your house may never sell, which would put the seller in a very bad position. You also need to make your offer compelling in terms of price. The more contingencies you have in your contract, the more strikes there are against you in the eyes of the seller. Combat the resistance that contingencies provoke by offering close to asking price. The seller will then be more inclined to consider your offer. In addition to including an end date, you and the seller need to decide what will happen to the new home while waiting for your house to sell. Some sellers take their property off the market completely until the buyer's house has sold, while others add a kick-out clause that allows them to continue to show the property to prospective buyers. If the seller gets an offer on the house, they have to give you notice (24-72 hours is common) so that you can remove your contingency, or they'll accept the other offer. Remember that a sale contingency puts your offer at a disadvantage in the eyes of the seller. If another buyer comes along and puts an offer on the table with no strings attached, the seller won't consider yours for a second. Their goal is to sell their home quickly, for the best price possible. By adding a sale contingency, you're presenting a plan that's counter intuitive to the seller's goals. That's why it's imperative to make your offer as appealing as possible, to overcome the seller's doubts. |
About the Author
Discover what Greg Smith and his team of top agents in the Boulder real estate market can do for you. At BoulderHomeSource.com, you can search Boulder MLS listings, learn about local markets, and get the inside scoop on living along Colorado's Front Range.
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