Contingent sales a tricky business
Delayed deal can be losing proposition
June 25, 2009
By Bernice Ross
Inman News®
DEAR BERNICE: We have had our home on the market for almost nine months. We finally received an offer from a nice couple, but their offer is contingent upon them selling their house in another state. They would like us to take the house off the market, but our agent says we should leave our house on the market for backup offers. What do you think we should do? --Laura J.
DEAR LAURA: Contingent sales are always difficult. If you elect to take your property off the market and prices in your area are declining, you run the risk of your house being worth even less than it is currently.
If you agree to a contingent sale, the first step is to set up the contract where you can cancel within a specified amount of time. Typically the buyers have 60 to 90 days to place their property under contract and to close on both their current property and your property. Alternatively, you could give the buyers a specific number of days to remove the contingency regarding the sale of their home.
Here's where it gets tricky. If the buyers have not sold their house and they remove their sale contingency, will they still be able to close on your property? To protect yourself, ask the buyers to demonstrate that they have their down payment from a source other than their present property. They must also be able to qualify for payments on two houses. Ask for a "preapproval" letter from the lender, not just a "prequalification." Given today's current lending environment, it's extremely difficult to qualify for payments on two houses.
This situation becomes even more complex if you receive a backup offer. You could be at risk to sell your house twice. For example, assume that you accepted the original offer contingent upon the first buyers selling their house. The buyers have not yet sold their home when you receive a second offer without a contingency. You decide to cancel the first offer and take the second offer. The challenge is that unless the cancellation is handled properly, you could still be obligated to sell to the first buyers, even though you have a binding contract with the second buyers. Needless to say, this is the type of situation that could easily end up in court.
Be cautious. Protect yourself by hiring an agent who understands what is required to handle backup offers. If your agent seems unsure, consult with his or her office manager and/or broker. Alternatively you can check with an attorney. In many cases, the local or state board of Realtors has special forms for handling contingent sales. Since contingent sales are so complex, please carefully weigh whether it's better to agree to the contingent sale or wait for a buyer who doesn't need a contingent sale.
DEAR BERNICE: My sister-in-law has been in the real estate business for about a year and has sold only one house. My husband and I are being transferred and must sell our home. The problem is neither of us thinks that she is the best person to handle our sale, especially since she lives 20 miles from where we live. We're afraid of creating hard feelings if we don't use her. How can we get out of this mess? --Roberta P.
DEAR ROBERTA: Your home is probably the most valuable asset that you own. You deserve the very best representation available, especially in today's challenging market. My recommendation is to begin by interviewing at least three agents who are successfully listing and selling homes in your area. Ask each agent for their 90-day marketing plan, a list of the Web sites where your property will be marketed, what type of video tour they plan to shoot of your property, as well as testimonials and contact information from past clients.
Before setting up any appointments, call, e-mail, and/or text each agent about one of their current listings to see how responsive they are. Also, call their offices to see how inquiries on your listing will be handled. You can invite your sister-in-law to participate in the process and ask her to supply you with the same data. That may be enough to make her realize that she's not adequately prepared to represent you or to show you that she is.
Another way to handle this situation is to offer to pay her a referral fee of 20-25 percent from the listing side. Agents are accustomed to paying referral fees for listings. Check with your sister-in-law first to make sure that this agreement is acceptable to her. Tell her that you want someone who specializes in your local area, but are willing to pay her a referral fee. If this arrangement is acceptable, explain to each agent you interview that your sister-in-law is an agent and that you have to pay her a referral fee to keep peace in the family. Be sure that both your sister-in-law and the agent you hire have a written referral-fee agreement signed by both agents and their respective brokers.
A slightly different alternative is to ask your sister-in-law to partner with a local agent. This is actually a more difficult situation, because the agents must figure out who is responsible for what as well as how the marketing costs will be allocated. The simplest solution is to go the referral fee route. Good luck!
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com.
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