Agent

Pitfalls of contingent home-sale offers

Sellers should be careful with contract clauses

Last year, real estate offers made contingent on the sale of the buyer’s home stood little chance of acceptance due to record low inventories of homes on the market. Now, swollen property inventories are making the home sale market more challenging for sellers. And contingent sales are making a comeback in some markets.

You might be tempted to take a contingent sale offer if your house has been sitting on the market for months unsold. Before you do, be sure that you understand the pros and cons of this approach.

An advantage of accepting a contingent sale offer is that you know someone likes your home enough to enter into contract to buy it. Another advantage is that contingent sale buyers often pay more to entice a seller into accepting their offer.

However, a higher contract price is worthless if the deal never closes. A recent sale in the Laurel district of Oakland, Calif., was contingent on the sale of the buyer’s house. The deal fell apart because the sale of the buyer’s home collapsed.

Going back on the market, even though it’s due to no fault of the house, can be a tough stigma to overcome. This is particularly the case in high-inventory markets. Buyers tend to focus on new listings, rather than on listings that have been around awhile.

Contingent sale offers are riskier than non-contingent offers because they are dependent upon an event occurring over which you have little control. If your buyers aren’t realistic about the value of their home, you could wait indefinitely for their home to sell.

For protection, many sellers who accept contingent sale offers insist that a release clause is included in the contract. A release, or escape, clause allows the sellers to continue to offer their home for sale until the buyers remove their sale contingency. If they receive another offer before the sale contingency is removed, they can accept it in backup position, subject to the collapse of the primary offer.

The sellers then give the first buyers written notice that they must remove their sale contingency within a time period specified in the contract. This time period is often 72 hours. However, it can be any mutually acceptable time period.

Sellers who accept a contingent sale offer with a release clause assume that their home will continue to be shown to buyers. However, if there are a lot of similar listings on the market, you could find that your showings drop off significantly.

HOME SELLER TIP: To guard against waiting months for the buyer’s home to sell, your contract should allow you to cancel the contract if the buyer’s home isn’t sold within a certain period of time, say a month or so. You could agree to extend the time period. But, at least you can get out of the contract if it looks like it’s going nowhere.

Offers that are made contingent on the close of the buyer’s home sale are better than offers made contingent on the sale of that property. At least the buyers have an accepted offer, so you know that their home is marketable at a price they are willing to accept. However, there is always the risk of this deal falling apart as was the case example above.

Before accepting a contingent sale offer, find out as much as you can about the buyer’s home, its expected selling price, the anticipated list price and the demand for similar properties in the area.

THE CLOSING: If you determine that the buyer’s property appears to be more saleable than yours, accepting a contingent sale offer might be worth the risk.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.