Pros & Cons of Contingent Sale Offers

Seller may raise price to offset risk

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 La Crescenta decided to take a chance on a contingent sale offer written by buyers whom I represent. The seller had previously received offers for less than the asking price, and had even been in escrow with one of those buyers who ultimately backed out. Eventually, my buyers submitted a full price offer. 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 local neighborhood recently sold to a contingent buyer. The property was priced well over $1 million, which is a slower moving price range. 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 by having to go in with no contingency. 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 includes a release clause, you risk losing the house to another buyer if your house 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 back-up 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 back-up buyer.

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 offer.

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. In this case it may be worth it to a saller to accept a contingent sale offer from a motivated and realistic buyer who has a house to sell that’s in a more desirable price range.