Has everyone noticed that the market has slowed a bit – some might call it a return to normal. And cash offers are less popular as more buyers try to get mortgages. And contingency offers are more common today than they have been during the past few years.
So what is a contingency offer? It's an offer to purchase property from a buyer who still has to sell his “other” house (or perhaps experience some other known contingency) in order to perform. I once had a contingency offer which stated that the buyer would go to closing as soon as he received a large insurance award—which did happen, although it took longer than we all thought.
There are many other types of contingencies, and in that sense just about every purchase offer is contingent. Some are contingent on the close of escrow on a property already sold. Most offers are contingent on the buyer receiving full loan approval. Most are also contingent on inspections yielding satisfactory results, or having the seller fix things that need to be fixed. Nonetheless, in the business, a contingency offer usually means one where the buyer has not yet sold his property.
There are many situations where it makes sense for a buyer to make such an offer and for the seller to entertain and perhaps accept a contingency offer. It certainly makes sense when the number of potential buyers is not large. This could be because of general market conditions, or it could be attributed to the fact that the property you want to sell has limited appeal, or maybe it is just in a price range out of reach to most. In any of those conditions it makes sense to try to work with the proverbial bird in hand.
Naturally there are many factors to take into consideration. A primary concern is the salability of the buyer's property. What I especially want to know is the contingency property's condition, location and whether it is priced right. If the property is local, usually I can get a good fix on this. If it is out of the area it may be necessary to get a BPO (broker's price opinion) froma knowledgeable broker in that locale. Agressive sale techniques like reducing the price every 2-3 weeks if a sale has not occurred may at least give the seller confidence.
I have been successful in asking for a larger deposit than usual with a contingency offer, and then converting the deposit to “Non-refundable” after a certain time period (say 2 months) has passed. The seller is more confident under these circumstances, and a buyer who is financially committed to the purchase is a most appealing buyer.
Sellers are usually adament that they don't want to lose potential market exposure while waiting for the buyer to try to sell his house. Some contracts allow for the seller to keep his property on the market, with the provision that, should he receive another acceptable offer, he will notify the the contingency buyer who then has a specified amount of time (usually 72 hours) to remove his contingency. Usually this means demonstrating that he, the contingency buyer, has the ability to close, in spite of his “desire” to have the aforementiond contingency.
Frequently this condition is characterized as a 72-hour kick-out clause. This clause allows the contingency buyer 3-days to, as it were, fish or cut bait.
Sellers or their agents have often been reluctant accept a contingency offer, because they felt that no other agent would show their property. Part of the reason for this concern was that the property would no longer be listed in "active" status in the multiple listing system (MLS), hence buyer's agents would not even see it when they did a computer search. In Florida's MLS system there is a "middle ground" known as a back-up status which means the property is still on the active market and the seller is soliciting further offers. Good agents who are looking for property will not ignore such listings, but will call the listing agent to find out what the situation is. Many would be willing to write a back-up offer, knowing of the contingency situation.
Needless to say, there are other factors to be considered when entertaining a contingency offer, but you get the drift. One thing is for certain, everything is negotiable and there can certainly be worse things for all parties than a contingency offer – think for a moment about no offer at all.
Dane Hahn is a real estate professional affiliated with Sarasota Realty Associates. He can be reached at 941-681-0312 or by email at firstname.lastname@example.org