Making on offer on a home with any type of contingency other than an inspection is really tough in a sellers’ market. With sparse inventory of homes for sale, the competition for buyers is fierce, particularly for homes anywhere below the mid $300,000s in Greater Cincinnati. Right now, it’s just counterproductive to put extra contingencies in an offer when a buyer may be competing with one or more buyers for the same house. Of course, sellers want the fewest strings attached in an offer.
The First Dream Home Offer
Recently, however, I had the opportunity to help a client with a contingency strategy that helped everyone walk away with a win. This particular client needed to sell their current home in order to buy their “move-up” home, which is not uncommon. There was a catch, of course. This client wanted to avoid a double move that’s often involved when needing to sell first. Would stars align to get their current house sold simultaneously to buy and close on another home? Here’s what happened.
The client couple started with a home search. They knew that inventory was low and they wanted to get a jump on what was available. We hadn’t put their home on the market yet. After a bit of looking, they found the perfect home for their family and asked if I’d write up the offer with a “sale contingency.” This of course means that the offer is made with the contingency of their current home selling first. I agreed to write up the offer with the warning that I did not have high expectations it would be accepted. Indeed, the terms of the offer were rejected.
Obviously the couple was disappointed and asked for advice on how to proceed. They still did not want to deal with a double move and short-term housing. This is where I got creative. The clients’ current home had a market value in the sweet spot for competitive buyers. I knew their home would sell quickly, probably faster than the dream home they wanted. I advised them to get their current home on the market immediately with the intent that it would go pending fast and they could then make a new offer on the same dream home if it was still available. The rub, of course, was that the seller would then need to accept a “pending closing” contingency, which is normally more palatable because a buyer is already in hand.
What Could Go Wrong?
What if their current home went pending first and the dream home got a new buyer in the meantime? Or the seller still did not accept any new terms? It could take a couple of days to negotiate the dream home deal and if it didn’t work out, my clients would be locked into selling their current home with nowhere to go.
TWO Contingency Strategies at Play
To avoid any backfire in our strategy, I knew we’d need a contingency for any offers on my clients’ current home in addition to the pending closing contingency on the dream home they wanted. Since I anticipated a great deal of demand for their home in this sellers’ market, I advised them we would likely have the upper hand in the negotiations. When the offers came in, especially if we had multiple offers, we could choose to work with a particular buyer in exchange for a contingency written into the offer whereby my client would have a predetermined amount of time (2 days in this case) to put together a deal on the dream home they were interested in. With this in place, they had 48 hours to negotiate a deal to their satisfaction and if we were unable to do so they would not be locked into selling their home to that buyer.
Success with the Second Offer
The idea worked perfectly. The original dream home was still available two weeks after our initial offer and we indeed received multiple offers on the clients’ home. The buyer we picked was excited to give my seller the 48 hours’ for negotiation on the other deal in exchange for knowing that we had selected them. And they were relieved that accepting this contingency helped eliminate the competition.
Not only did the dream home seller accept the pending closing contingency, but my sellers also got a better price on that home than was proposed in the previously rejected offer. It was truly a win-win for my seller and our new buyer.
Experience and strategic know-how matter in real estate, especially during competitive times. There are a variety of ways to avoid a double move with contingencies when buying and selling homes. Understanding the strategies can get complicated and come with some risk. As with all real estate needs, contact me directly if you have any questions!
Real Estate Term of the Week
Sale Contingency: One type of clause which could be included in a real estate sales contract or an offer to purchase real estate. With a home sale contingency in place, the transaction is contingent on the sale of the buyer’s home.