Pros, cons of contingent sale offers

By: Dian  Hymer

December 08, 2003

For years, sellers flat out rejected contingent sale offers. Now, some buyers are finding sellers more receptive to offers that are made contingent on the sale of another property.

Sellers don't like contingent sale offers because they tend to be riskier than offers that aren't dependent on another home selling. One fear is that buyers might ask too much for their home and it might not sell at all. In this event, the sellers could waste time while their home is off the market and then find themselves back at square one looking for a new buyer.

In a real estate market that's moving full steam ahead, there's little room for contingent sale offers. When the demand for listings outstrips supply, sellers can easily find non-contingent buyers with whom to negotiate. Why accept a less-than-certain offer if you don't have to?

However, when the market slows, as it has in some areas and in some price ranges, sellers can't afford to be as choosy. Recently, a seller of a home in Piedmont, Calif., decided to take a chance on a contingent sale offer. The seller had previously received two offers, both for less than the asking price. She rejected both offers. Eventually, a full-price offer appeared. The seller accepted it, even though it was contingent on the sale of the buyer's home.

In this case, the seller was willing to accept higher risk in return for a higher price. This is often the case. Another property in a desirable neighborhood of Oakland, Calif., recently sold to a contingent sale buyer. The property was priced well-over $1 million, which is a slower price range in this area. After months on the market with no action, the seller decided to give a contingent sale buyer a chance.

So, a benefit to a seller of accepting a contingent sale offer is that you might receive a higher price than you would from a buyer who doesn't have to sell in order to buy. On the buyer's side of the equation, you may have to pay more to entice a seller into accepting a contingent sale offer.

It may be worth it to the buyers to pay more for the security of knowing that they won't end up owning two homes at the same time. With a contingent sale offer, if your home doesn't sell, you aren't obliged to buy the other home.

However, if the sellers insist that your contingent sale offer include a release clause, you risk losing the house to another buyer if your home doesn't sell in time. A release clause allows the sellers to continue marketing their home until you remove your sale contingency from the contract.

Suppose the sellers accept an offer in backup position. If there's a release clause in the contract, the sellers can notify you that you must remove your contingency within a certain time frame (often 72 hours). Otherwise, you will have to withdraw and the home will go to the backup buyers.

Another drawback to contingent sale buyers is that they may feel pressed to sell quickly in order to keep from losing the home they want to buy. This could mean accepting a lower price.

Sellers who accept contingent sale offers should make sure that the buyers' home is salable and that it will be listed at a reasonable price. In some areas, the lower priced market is selling much more quickly than the $1 million-plus market.

THE CLOSING: In this case, it may be worth it to a seller to accept a contingent sale offer form a motivated and realistic buyer who has a house to sell that's in a more desirable price range.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.