In For Home Sellers

The Contractual Tool that Can Help Sellers Buy the House They Want in this Market

Here’s a very common situation that sellers are finding themselves in lately. They have accumulated some great equity in their home for the past several years that they would like to utilize for the purchase of a new home that can better accommodate their personal or familial needs, but there’s a few problems: 

  1. they need the money from the sale of their home to buy their new home (or need the cash to pay for it outright); and
  1. there is no guarantee that the home(s) they want, they will actually get, based on the velocity of today’s market.

So, how can sellers use the money from their current home to buy a new one?

Do sellers have to sell their home, rent for a while with the money in the bank and go home searching after?

Do they risk putting their home up for sale and attempting to precisely coordinate the selling & buying of two homes, but rushing the process of finding the perfect home?

Is all of this risk worth selling and buying right now at all?

The answer? Maybe. Why? Because there is a contractual tool that sellers have at their disposal, that they may or may not know about, to use in these circumstances.

Drum roll, please… the contractual tool is called… a Contingent Offer.

A Contingent Offer allows for a seller (who would also be a buyer on the other side) submit an offer to another seller of a home they want, with terms that allow for that buyer (and seller) to first sell their current home and use the money made on that transaction to purchase the one they submitted an offer for. It can get a bit confusing to follow how all this works, so let’s break it down in an example. 

For the purposes of this example let’s pretend that you are Seller #1; you want to sell your current home and use the money from that sale to purchase a new one from Seller #2.

This is how it would work, in chronological order:  

  1. You need to first put your home on the market. Seller #2 will evaluate the strength of Seller #1’s offer by the likelihood of them selling their home. The provisions of the Contingent Offer don’t allow for you to submit an offer without Seller #1 showing good faith effort to sell their home. You have two options when Seller #1 is submitting a Contingent Offer: (1) they can submit the offer while their house is on the market without having accepted an offer yet; or (2) they can submit the offer while their house is currently in escrow (under contract) with a buyer on the other side. Obviously, Seller #2 will favor the latter situation the most, but we represent clients all the time that get Contingent Offers accepted without being in escrow for their own home. This scenario is best for Seller #1 because it gives them a little more time to find the perfect home and not have the pressure of submitting an offer on a house that might not be perfect, but they find themselves on a time crunch on their own deal.
  2. Submit the Contingent Offer that includes critical time periods. Based on the two options available for buyer (Seller #1) and the Seller #2 explained above, the Contingent Offer requires a time period of how long Seller #2 will “wait” for Seller #1 to accept an offer OR close on their home. These time periods are negotiable and are very important to both parties, so agents should take out the guns on getting the best deal for both, the buyer (Seller #1) and Seller #2. As Seller #1, you want the most comfortable (longer) time period to allow for you to not lose out on the home you want to purchase from Seller #2. For Seller #2, you don’t want to waste precious time off the market for any other potential buyers and/or better deals, so you want the shortest amount of time.
  3. If Seller #1 does performs on their end within the time period. If Seller #1 either, (a) accepts an offer from a prospective buyer, they will deliver their contractual documents to Seller #2 as proof of a contract. At this point, all the provisions, terms and conditions of the actual Purchase Offer between Seller #1 and Seller #2 will go into full effect. This includes all the provisions regarding inspections, earnest money, loan processing, etc; (b) if Seller #1 closes on the sale of their home, the same is true — the contract between Seller #1 and Seller #2 goes into full effect. With that said, one thing to keep in mind is that the Contingent Offer is almost a precursor to the full Purchase Contract. The Contingent Offer serves as an agreement between two parties that the sale of a property needs to occur before a subsequent purchase of another can happen.
  4. If Seller #1 doesn’t perform within the time period. If Seller #1 fails to accept an offer OR successfully close on the sale of their home, the Contingent Offer between Seller #1 and Seller #2 is immediately cancelled and any or all Earnest Money from Seller #1 (buyer) shall be returned. At this point, Seller #1 can try to renegotiate with Seller #2 (if they really want the house) or move on to another property that might work.

These 4 steps merely provide a brief overview of what you can expect when using a Contingent Offer, but so many little intricacies and terms exist that can be leveraged by your agent to get you the best deal. The purpose of this article is to mainly make sellers aware that there are ways to sell and buy without so much of the risk.

If you feel that the use of a Contingent Offer will help you stop feeling stuck or lost, make sure to call your trusted real estate professional to get the “full scoop” on how to best use it for your unique situation. A lot of things need to come together on the sale of your own home to make a Contingent Offer a possibility, so make sure to have that discussion first and start there. Not having a strong and effective game plan for selling your own home at favorable terms, is the makings of a disaster waiting to happen, especially when you start adding complexities to your deals like Contingent Offers.

One more thing. 

BONUS TIP: There is one additional benefit of a Contingent Offer, that if done right, can be magical. You can coordinate the sale of both properties (the one you’re selling & the one you’re buying) on the same day. What does that mean? No putting things in storage for the interim. No crashing with family or friends in the meantime. No losing sleep over the juggling act of moving, coordinating loans and funds, and still dealing with your day-to-day life. This is BIG deal and a HUGE benefit that the Contingent Offer can bring to the table.

It takes the perfect ingredients to make a Contingent Offer work seamlessly for a seller, but a great agent with the expertise and right supportive team can make it happen.

If think that a Contingent Offer will be a great way to purchase and move into your new home, but you want to learn more? 

CLICK HERE to book a complimentary call with me today.

 

The Contractual Tool that Can Help Sellers Buy the House They Want in this Market

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