Young couple reads home sale documents
Dabl At Home Dec 2020
Presented By
Dabl at Home

Why You Should Avoid Using The Home Sale Contingency The Next Time You Buy A House

If you’re preparing to buy or sell your house, you need to know about the complications the home sale contingency can cause.

Buying a home is not a straightforward process. Once you make an offer, be prepared for several rounds of negotiation to take place before your offer is accepted and don’t be surprised if you have to negotiate again as you learn more about the home while you’re in escrow. During escrow, the homebuyers will have to release various contingencies throughout the process in order to close the deal. As contingencies are released or conditions are deemed satisfactory, it will be harder for the homebuyers to back out of the deal, as their deposit will be in jeopardy. For example, you’ve likely already heard of the inspection contingency, which gives homebuyers the right to negotiate for credits and repairs or back out of the deal depending on what the home inspection report uncovers. The appraisal contingency and loan contingency are also very common.

Since it’s not applicable in every deal, one contingency you may not know about is called the home sale contingency. This contingency comes from a dilemma that many homebuyers face where they must sell their current home before they can afford to purchase another one. The home sale contingency ensures that the buyer’s current home will be sold before the deal for their new property can close. Assuming the buyer’s offer is accepted with the contingency, there will likely be a time limit put in place where the buyer will have to release the contingency by a specified deadline, unless otherwise agreed upon. If the buyer does not release the contingency by the deadline, the buyer will be considered in breach of the purchase contract and the seller can cancel the deal. Of course, homebuyers can’t guarantee their current home will be purchased within the time frame and offers that include the home sale contingency aren’t often accepted, making the use of the contingency very risky. 

As you may expect, most real estate agents actually advise against including the home sale contingency as a must-have with your offer. As we all know, home sales rarely come without complications. The home seller will have to wait for you to work through all the complications that come with selling your own home before you can buy theirs, which means the escrow process on the new house will likely be extended. The seller likely won’t want to deal with these delays. Since the seller’s home will be listed as pending, other potential buyers will be deterred from making offers in the event the current homebuyers have to back out of the deal because of issues with their current home’s sale. In a competitive real estate market where sellers often receive multiple offers, an offer that includes a home sale contingency will likely be viewed as one of the weakest because of the possible complications that can arise, such as delays, and even falling out of escrow. 

If you still do want to try to use the home sale contingency on your next deal, your timing will determine your success or failure. Ideally, your home should already be listed for sale. It’s even better if your current home is already under contract with all contingencies removed. This will show the seller of the house you’re trying to buy that you will likely be able to close the deal on your new house without delays, giving your offer a better chance of being accepted. However, it’s still best to consider alternatives instead of using the home sale contingency. 

First, list your current home before you start looking for your next residence. Once your buyer has released all contingencies, then you can start house hunting! If you need more time to find a new home or get through escrow, you can always sign a short-term rental agreement with a local house or apartment complex, or temporarily stay with willing friends or relatives. The point is you don’t need to have a new home ready to immediately move into as soon as your existing house goes on the market. 

Next, you may be able to negotiate a lease-back of your current home with your buyers. This allows you to temporarily stay in the home after the sale is complete if you need extra time to pack or find your new house. That way, you will have a place to stay until you’re ready to move. Plus, you will have the money in the bank from the sale of your home and you can write a more appealing, non-contingent offer when you find your dream house. 

In a seller’s market, you may be able to get away with including a “Home of Choice” contingency on the sale of your old home. This contingency gives the seller a chance to find another property before fully committing to selling the current property. That said, the new home will likely need to be found within a limited time frame and many buyers will be turned off by this contingency. But in a seller’s market, more buyers may be willing to accept these terms in order to make their offer on your home more competitive. 

Finally, it’s always worth checking to see if you can qualify for a new mortgage as long as your current home is listed for sale. In this case, you would be able to buy a new home while selling your old home without having to make a contingent offer. Regardless, making sure you have pre-approval for your new mortgage is always important before placing an offer and will make you a more appealing candidate to the seller. 

Get more great inspiration and ideas for your home on Dabl! Check our Dabl TV schedule and find out where to watch Dabl TV.