It's relatively common for a buyer to write an offer on a property with the offer contingent upon the sale of their current home. The offer will typically have a provision that allows them an escape should their current home fail to close within a specified period. It introduces unwanted uncertainty to the transaction for the seller but, if all are acting in good faith and the seller's agent protects her client effectively and stays in contact with the buyer's agent about the other sale, the uncertainty can be reduced.
The best scenario for a contract with this contingency is with a buyer whose house is already under contract, past the inspection period and with mortgage commitment. That is rare. It's much more common for the buyer's house to be listed for sale but without an accepted contract. In this scenario it is prudent for the seller's agent to determine whether the buyer's house is correctly priced and can reasonably be expected to sell quickly. In most cases I would advise a seller not to accept an offer contingent upon the sale of another property unless the other property was already under contract and reasonably certain to close or that I could confirm was priced to sell quickly. In the absence of reassuring circumstances I always advise against accepting this contingency with a house that isn't already listed for sale.
Regardless of circumstances I advise sellers to keep their property listed for sale as "accepting backup offers". When a property is marked "Contingent" in the MLS it disappears from searches for properties for sale. Our MLS and many others have a category called "Backups" which keeps the listing in the actively for sale category even though it has an accepted contract. It might be advisable to immediately reduce the asking price if the accepted contract is below the asking price to increase the chances of getting a backup. My opinion on backup contracts is well known to readers of this blog. For the seller, having a backup contract in hand effectively removes the uncertainties related to the other property closing and puts the seller in a postion to deny any requests for concessions or changes to the contract. In the event the other property doesn't close by the contract date, the seller can cancel and proceed towards closing with the backup contract. A contract without this contingency is obviously more desirable but these contracts, in my experience, do have a good record of closing.
Takeaways for sellers who might find themselves considering this scenario:
- If the first property is not already under contract have your agent confirm that it is priced correctly and likely to contract quickly. Consider contract language about price reductions if not under contract within X days.
- Insist that your agent stays in contact with the buyer's agent about progress of the sale/listing. Lack of communication from the buyer's agent is usually a bad sign.
- Keep your house listed for sale as "Backups" and aggressively seek a backup contract.
- Have a plan for failure of the contract and, in the absence of a backup, be realistic about requests for extension of closing date from the buyer.
I hope everyone has appreciated the significant difference in temperature here on the beach during this incredibly hot July. We have consistently been 5 to 10 degrees cooler than just a few miles inland thanks to the reliable, cooling sea breeze which begins midday most days. Orlando? Forget about it. As I write this, it's 7 degrees hotter there.
"Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule." __Friedrich Nietzsche