Kansas City Real Estate Thoughts - The Blog

I have long been a believer that in a seller's market a home seller should not accept a contingency offer (accepting a buyer's offer to purchase with the contingency that they be able to sell their current home to move forward with the purchase).  The reason?  Why would a seller let the success of their home sale hinge on the ability of someone else to get THEIR home sold first, so they can move forward with buying?  When you accept a contingency offer you are counting on many things, a few of those being: the home the buyer has to sell being desirable to buyers, the home the buyer has to sell being priced appropriately, the marketing being done on the home the buyer has to sell being sufficient, etc.  As a seller, those are the exact same things you would be dealing with in getting YOUR home sold.  The important distinction being YOU control those factors - UNTIL you accept a contingency offer that is!

The above argument is based on operating in a seller's market. But now, both nationally and locally here in Kansas City, we are in a buyer's market. So what should you do? Some Realtors will go to great lengths to explain why accepting a contingency offer can be a perfectly smart thing for a home seller to do. For the most part I still disagree with accepting a contingency even in a buyer's market. Showings on your home WILL drop off - sometimes to the point they are non-existent.  So the contingency offer had better be very, very solid otherwise. I know that some Realtors say that the showings you do get while the home is under a contingency are solid buyers (because they come to view your home KNOWING that should they like it they must make a solid, non-contingent, offer). My argument is that is a rare occurrence and after you switch the status to Show For Backup on MLS, you usually hear crickets rather than buyers thereafter.

Now if you should decide that accepting a contingency is the best course of action (maybe you are desperate to sell and/or if the contingency causes the deal to fall apart it's not the end of the world) then at least be sure the rest of the price, terms and conditions are favorable. Here's a list of issues a home seller should look at if considering a contingency offer...

• The buyer's current property is already under contract. If you are going to accept a contingency offer, this is the best possible scenario.
• Make sure the buyer's current home is already through the inspection process - require the buyer to present the signed inspection notice/resolution on their current home prior to accepting a contingency offer on your home.
• Get a copy of the buyer's buyer's loan commitment letter - yes you can do this and review it prior to accepting the contingency offer. This will let you know if the buyer's buyer is serious and qualified to get that deal closed.
• Get a copy of the appraisal on the buyer's current home to be sure that home appraised at or above the contract sales price.
• Limit the closing time frame on your home to 60 days or less. This will limit the potential time lapse if the sale of the buyer's existing home falls apart for some reason and you have to switch your home's status back to active.
• Also remember that as long as the contingency is in place, you can accept an offer from another seller (a long-shot). You would then give the first buyer notice you are accepting another offer. The first buyer generally then has 72 hours to either remove the contingency from the contract or the contract is canceled. But why wait 72 hours? I would write 24 hours into the Kick-Out clause instead.

I would guess the above is rarely done to protect a seller who is accepting a contingency offer. That would be a mistake because the success of your home sale when accepting a contingency clearly rests on whether the buyer is able to get their current home sold. Do yourself the favor of learning as much as possible about the sale of the buyer's existing home.

Now if you are considering accepting a contingency with a buyers who's current home NOT under contract or NOT even on the market yet, then I guess you don't agree with what I've just said. If that's the case, then there are at least a couple things you should do. One, make the buyer agree to list their current home with a Realtor - no for sale by owner here my friend. Two, limit the length of the contingency (60 days??) - doing so shows the buyer that time is of the essence with them getting their current home sold. This can help ensure the buyer's current home is priced appropriately, etc.  

If you have any questions about contingencies or want to clarify any of the above points, feel free to leave a comment below.