Home BuyersHome Sellers January 6, 2021

Home Sale Contingent Offer – Pros and Cons

There are a lot of specific terms used in real estate, and you may wonder what a home sale contingent offer is. Who does it affect and what are the advantages and disadvantages? We’re here to provide you with the information you need.

A Home Sale Contingent Offer

Offers typically come with contingencies such as a home inspection but an offer that is specifically dependent on the sale of another property is a home sale contingent offerIf there’s a home sale contingent offer, the MLS (Multiple Listings Service) will list the property as contingent. So if someone else writes up a better offer then that one is “bumpable” by someone else.

Types of Home Sale Contingencies 

There are two types of home sale contingencies. One is a contingent offer and one is a pending sale contingency, which would say the other property is already under contract.

Suppose the potential homebuyer has not obtained or agreed to an offer on their own house. In that case, they may submit a home sale contingent offer. Through this contingency, the buyer effectively has “first dibs” on the house. The seller can include a “bump” clause to continue to show the property to other potential buyers. If the seller receives an offer, the first buyer has a specified amount of time to decide whether they want to move on with their contract. 

If the potential homebuyer has acquired an offer and has a closing date set, they may include a pending sale contingency. Since a home is not officially “sold” until closing occurs, this protects the potential homebuyer if the deal falls through. If the house is sold, then the contract is still valid. If the deal falls through, so does the homebuyer’s offer. 

Earnest money or good faith money may also be given to a seller when a buyer includes a contingency clause. This money represents the buyer’s good faith to continue with the purchase if the outlined conditions are met. Similar to a deposit, the earnest money is typically held in an escrow account until closing and then it is applied to the down payment and closing costs. 

Pros and Cons of a Home Sale Contingent Offer

There are many things for the seller to consider when accepting a home sale contingent offer. If you are selling your home, you should note that there is no guarantee that the buyer’s home will sell. So it is essential to specify a timeframe for the buyer to sell their property.

On the other hand, if your property has been on the market for a while, then a home sale contingent offer may be a good option. To protect yourself as a seller, you can include a “bump” clause in the contract to obtain some leverage in the sale. You would state a specified amount of time after receiving another offer for the first buyer to decide whether they want to pursue the contract. If the buyer still wants to continue, they must remove the contingency clause to resume the contract. If the buyer does not respond in the specified amount of time, you can back out of the contract and sell to the new party. 

Pros and Cons of Buying a Home with a Contingent Offer

If you are looking to buy, you might also be a home seller at the same time. If this is the case, it is crucial to understand both sides. As a buyer, a home sale contingent offer allows you to smoothly transition between houses. However, a home sale contingent offer comes with risk. You’re essentially asking the home seller to hold the house for you and risk not being able to sell their home if you’re unable to sell yours. And, when you’re looking to buy in a popular place like Bainbridge Island, multiple offer situations are common. So you’re competing with many eager buyers. Other buyers may be able to buy the home you want without having to sell their current home. Additionally, some may be willing to waive other contingencies in order to win a multiple offer situation. This does not mean that you need to do that too if that makes you uncomfortable. But it is important to consider contingencies carefully.

Bottom Line

As you can see, there are different ways to look at a home sale contingent offer. It all comes down to the offer made on the property, any time constraint on the seller to close, and the seller’s preferences. A knowledgeable, local real estate agent, will advise you, advocate on your behalf, and guide you through the process.