The Town Broker

Re-Thinking The Home Sale Contingency

The home sale contingency (conditioning an offer upon the sale another property) has been part of real estate contracts since…well… since there have been real estate contracts. Unless you can afford to carry one property and still qualify for the purchase of another, a home sale contingency is a fact of life.

But when making an offer on a home, buyers should do everything they can to make their offer look better than the rest. There are a lot of ways they can do this. They can put more cash down, make a larger downpaymnt “up front”, or even waive some of the traditional contingencies…like home inspections. (Although I strongly caution most of my clients AGAINST this one. Unless you’re an experienced builder/investor who knows what ”deal breakers” to look for, the down-side risk is just too high.)

When marketing a home, sellers are looking for ready, willing and able buyers. But if you really need to sell first, you’re not really an able buyer…at least, not yet. When the market was blistering hot, having a home sale contingency was the “kiss of death”. The idea simply makes a lot of sellers a bit nervous. What happens if their house never sells? Isn’t it better to accept a contract that doesn’t have this additional condition built in?

Possibly. But in today’s slower market environment, I think it’s time to re-think the home sale contingency.

Slower Markets Demand Flexibility and Creativity

Let’s face it…the local housing market hasn’t really been tearing it up lately. As the graphic below shows (data courtesy of the GSMLS), 2010 has seen fewer contracts written in Westfield than in most of the previous few years. And since the home buyer tax credit disappeared on April 30th, things have really slowed down. Incidentally…if it wasn’t for historically “stupid low” mortgage interest rates, I suspect that August 2010 would have under-performed all of the previous years as well. So what is a home seller to do?

Accepting Contingent Offers By Adding A “Kick Out Clause”.

Increasingly, home sellers are beginning to recognize that any offer is a good offer. And while the terms sometimes need to be negotiated in order to get something acceptable to all parties, no offer from a qualified buyer should be considered insulting in this market environment.

Assuming that the price and all other terms are acceptable, many sellers WILL now consider accepting an offer with a home sale contingency. But in order to protect themselves, they’ll have their attorney add what we call a “kick out clause”. (And yes, this really needs to be done by an attorney and not your agent. As much as I’d like to help, I don’t have legal authority in NJ to alter the standard real estate contract in this way. In my view, it gets into that area known as “practicing law with out a license“…a big no-no for all licensed real estate folks.)

The kick-out clause gives the seller the right to continue to actively market the home, and search for an offer that does NOT require the home sale contingency. If they get such an offer, the 1st buyer…who still has a legally binding contract…has a limited amount of time (usually about 48 hours) to remove their contingency. If they can do it, they stay in the deal. If they can’t, they’re offer is thrown out and the seller moves on to the new contract. (This is where buyers need to think outside the box. Is it possible to get a very short-term loan from a family member until your house sells? Is it possible to temporarily borrow from a retirement account?)

There is always the chance that as a buyer, you could end up losing the home of your dreams to another non-contingent offer. I guess this makes the case for making absolutely sure that your home is properly positioned to sell quickly.  But if you find the home of your dreams before you sell, it’s still worth making an offer and not letting it get away!

For additional information on this topic or any other real estate need, contact Hal Benz -Your Home Sale & Short Sale Specialist. 908-216-4836

Tags: Home Sale Contingency

This entry was posted on Tuesday, September 7th, 2010 at 10:18 am and is filed under Buyers, Real Estate 101, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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