HOW DOES A CONTINGENT OFFER WORK IN REAL ESTATE?

Published 07-07-2019 By Rico Castillo

A contingent offer is an offer that is “contingent” on another property closing in order for it to close the transaction.

This scenario typically occurs when:

  1. You currently have a home that is too small for your growing family, but you can’t afford to have two mortgages.  Therefore, you have to sell your current home in order to buy the next larger home for your growing family
  2. You are being transferred by your company, but you have a home with a mortgage where you currently live and you can’t afford two mortgages.
  3. You’re now empty nesters and your current home is too large for the both of you.  
  4. You’d like to move to a better area/neighborhood, but still have a mortgage on your current home.

There could be other scenarios not listed above, but the point is you want or need to move to another home, but you can’t afford to do so until your current home is sold.

So, what do you do? 

What are your choices? …


A contingent offer can be tricky.  Make sure you know the terms of the contract.

MAKE A CONTINGENT OFFER

Let’s go through a scenario with me as both your listing agent and also your agent to help you locate the new home.

Before we continue, the one thing that you have to keep in mind first and foremost, is to…

 … NOT MAKE ANY OFFERS UNTIL YOU’VE ACCEPTED AN OFFER ON YOUR CURRENT  HOME AND HAVE OPENED ESCROW!

Sorry.  Please don’t take the All CAPS the wrong way.  I am not yelling.  I just wanted to get that point across and we’ll get into that in more detail in a little bit.  Just keep that tip in mind!

Let’s continue with our scenario.

Your plan is to get into a larger home since your family of 3 is growing and a parent will be moving in as well.

You currently own a 3 bedroom, 2 bath, 1100 square feet home. 

While it’s a good size as a starter home or for a family with one child (or two), it will feel a little tight as your young ones grow up.

So, what can you do since you can’t afford to have two mortgages?

Do you sell your current home and move in with family or rent, while looking for a new home?

Sure, you can do that!  But move twice?

If you do decide to sell your home, know the entire process and save yourself money, stress and headache.

Do you like moving?  Can you imagine doing it twice in a short period of time?  Do a contingent offer right and you won't have to.

Photo provided by Bill McChesney

I don’t know about you, but that thought hurts my back just thinking about it.

What if you can sell your home while you look for the other home?  Would that make your life easier?

“But what if we close on our home, but we haven’t found another home yet?” you ask!

THE BEAUTY OF DOING A CONTINGENT OFFER

The beauty of doing a contingent offer is the buyers who will look at your home and make an offer will be told by their agent that they are making an offer that is contingent on the seller (you) finding a replacement property.

What does this mean to the buyer?

It means …

  • She knows you can’t close on your house until you find another home that can close about the same time as your home. 
  • She has to wait until you find a home to make an offer on - if when she made an offer on your home - you haven’t found a home yet.


What does this mean to you?

It means you can go ahead and make a contingent offer and  have...

  1. No worries about having to move twice
  2. No worries about not having a place to live if your home closes
  3. No immediate pressure to jump into making an offer on just ANY home - you can look and make sure the home works for you and your family.

The key here is you won’t be pressured and you won’t have to worry. 

It’s nice to have a little peace of mind, don’t you think?

WHAT’S THE FIRST STEP OF DOING A CONTINGENT OFFER?

The first step is to talk with an agent who knows the process of doing a contingent offer. 

This process is tricky and has many moving parts.  It would be much smoother for you if you can use the same agent to sell your home and also find you the replacement home.

It would also help if you use the same title company for both transactions because the title company can just take your proceeds from the sale and move it over to the purchase.

I made it sound simple, but that is essentially what happens. 

If you live out of town, then having the same agent may not be possible. 

In this case, make sure both agents know the contingent offer process because they all need to have a very open line of communication all through the process so they’re all on the same page.

If you want a refresher of the entire buying process, read my article and get familiarize with the process.

DON’T MAKE AN OFFER ON A HOME UNTIL YOU ARE IN ESCROW ON YOURS

I mentioned this above briefly.  Let’s get into it a bit more in detail.

Let’s go back to our scenario above.

You have put your home on the market, but have not had an offer you want to accept yet.

However, you’ve found a home you want to make an offer on.

Let’s say you make an offer on that home even though you haven’t accepted an offer on your home yet.

Your offer gets accepted and you go through the entire process of ordering and paying for inspections.

Then 25 days later you are getting close to closing on that home.  You’re excited, but comes down to earth when your agent (it will be someone else, because it won’t be me writing an offer for you since your home is not yet in escrow) tells you that the seller’s agent is upset.

Why?  Because the seller’s agent has called your lender and was told they’re not even close to getting a full approval on your loan yet.  They tell the seller’s agent they still need to know how much of the proceeds you’ll apply towards the new purchase.

Since there is no offer accepted yet there is no clear cut amount that’s going to be applied towards your new loan.

Ouch!

You’ll lose out on that house and the money you spent for inspections, as well as your initial, good faith deposit on that home.  The total could be a substantial amount.

If the seller’s agent was smart, they wouldn’t have accepted your offer to begin with.

However, some agents are newer or are not familiar with this process and is happy to receive an offer on their listing, thus will accept your offer only to find out you can’t close on the transaction since your home is not even in escrow yet.

SITUATIONS WHEN YOU CAN MAKE A CONTINGENT OFFER THOUGH YOUR HOME HAS NOT SOLD!

There are situations when you can go ahead and make an offer even if you haven't accepted an offer on your home yet.  Here are a few...

  • You can use a line of credit (HELOC) on your current home
  • You can ask family members to loan you the down payment and you can reimburse them after your current  home closes
  • You can use a bridge loan from  your bank

WATCH OUT FOR NOTICE TO PERFORM FROM SELLER

Most likely, in the contract will be terms that allow the seller to ask you to remove the contingency of your home selling, if they have received an offer on their home.

Once  you receive the Notice To Perform you can then decide whether to move forward with the purchase or cancel the transaction and get your good faith deposit back.

So, don’t worry about not having a place to live in if you want to buy another home while still owing a mortgage on the current one...

Just do a contingent offer, but do it right! ...

Make sure you don’t make an offer until you have accepted an offer on your home.

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About the author: All of the articles in this site were written and provided by Rico Castillo (DRE# 01234643) with Coldwell Banker.  If any information is provided by another source, such as the local MLS or by Metrolist, then a disclaimer will be on that page.

Rico can be reached by cell at (916) 934-3146 or email at rico.castillo@cbnorcal.com.   Visit his YouTube Channel at https://bit.ly/3bAaZJs

My aim is always 100% client satisfaction by helping you accomplish your real estate goals and finding you the home you've Dreamed about in the area you and your family can feel proud and safe to live in!