Would you like to learn about home sale contingencies?
Home Sale Contingencies
What do you do when you find a home you want to buy, but you need the money from selling your old home? This is a question that many people have. They’ve put their home up for sale, and they’ve found what they want to make their next home. IF only there were a way to tie up the new home while they sell the old one….
It’s called a home sale contingency. Here’s how it works. The buyer and the seller reach an agreement on everything associated with buying a home, except the closing date. The closing date is set for when the buyer sells the old home. Are you still with me?
The Fine Print
A clause is added to the contract to address this situation. It says, in English, that the buyer (buyer 1) needs to sell their existing home to get the funds to buy the new home. If or when buyer 1 sells their existing home, the contract is now valid. However, until that contingency is removed, the seller will continue to show the home to prospective buyers.
In addition, should the seller receive an offer from buyer 2 that the seller wants to accept, buyer 1 will have 24 or 48 hours to remove the sale contingency and proceed with the purchase. If buyer 1 cannot remove the contingency, the initial contract is voided, and the seller can proceed with the new buyer.
Here’s what this does for the buyer. The sale price is locked in, and the buyer will get the home they want to buy. However, if they don’t sell their home in time, they won’t get the home. The price that buyer 2 is paying doesn’t mean anything. They will not need to match or exceed the price buyer 2 is offering.
Here’s what this does for the seller. The seller has a buyer, and the price is locked in. The drawback is that an offer from buyer 2 may be better. But if buyer 1 removes the contingency, they need to proceed with the terms in buyer 1’s contract.
A Possible Option for Buyer 1
If buyer 1 has substantial equity in the home, they may qualify for a Home Equity Line of Credit. They can use the funds from the HELOC to buy their new home. Once the old home sells, they can simply pay off the HELOC. However, this is not an option for everyone.
Our opinion is that a contract with a home sale contingency rarely works out. If you’re the buyer, we do encourage you to search for a home while your old one isn’t yet sold. However, we recommend that you look for a community, not a home. If you find a development, condo complex, or an adult community you like, it will make the search for a particular home easier when crunch time comes. And, if you find a model that you love, it’s even better.
The seller is in a win-win situation. That’s because their house is sold, but they don’t know when. And this makes it difficult to search for a new home. All that a seller can do is the same as the buyer, look for a community. But again, these contracts rarely work out.
When you’re ready to either buy or sell a home, please contact us.
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