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You want to buy a new home, but, in order to have the cash, or qualify for a loan to make the purchase, you need to sell your current home first. If you sell your home first, where will you move to? Where will you live? You don’t want to have to move twice!
This is the classic Chicken and Egg story – which comes first?
In many real estate transactions, both of these transactions are done at the same time, and are referred to as Contingent Sales – meaning that the final sale completion is contingent on certain objectives being met before moving on to closing escrow and transferring the property to the new owner.
There are two contingencies as they apply to sales like this. For you as a home seller, you will likely list your home for sale “Contingent on Seller Finding a Suitable Replacement Home.” This protects you when you enter into a purchase contract with a buyer, so that you aren’t forced to sell your home, if you haven’t secured a new home yet – meaning – you won’t be homeless.
Then on the buy-side of your replacement purchase you will have a “Contingency for Sale of Buyer’s Property.” This protects you (and your Earnest Money Deposit) in the event that the buyer for your home cancels for whatever reason. Then you aren’t forced to buy a home that you may not have the proceeds to acquire, or possibly sacrifice your earnest money deposit if you cannot complete the purchase.
Many readers will ask, who will want to buy my home if they have to wait until I find a suitable replacement? Or – won’t buyers offer less to purchase my home if they know that I need to find another first?
The truth is, some will and some won’t, on both questions. This process involves patience in waiting for the right offer, but also – depending on current market conditions – may require some compromise to keep the process moving in the right direction so that you can achieve your ultimate goal.
On the purchase of your replacement home, sellers entertaining offers may be reluctant to enter into contract with you because of your contingency requiring your home to successfully sell, as they may want more of a sure thing to place their bet upon.
All that one can do is to make the best of whatever offer is available. If you receive offers lower than you hoped for on the sale of your current home, as your agent, we will prepare a counteroffer to attempt to bring the offering up closer to your desired level. Note that there is no limit to the number of counteroffers that buyer and seller can trade back and forth until the necessary meeting of the minds is achieved.
Often times this countering back and forth produces a satisfactory contract. But, not always. Some buyers are taken aback when they receive a counteroffer. Still others may not see the same value in your home that you do. All of this is okay – these folks simply may not be your buyers. You’ll want to wait until a buyer finds your home that loves it and is committed to purchasing it. This does not mean that you’ll always achieve your asking price. But, you’ll get much closer to it with a buyer who is committed than you would with one who is not.
The good news is that home sellers do accept contingent offers. What makes the difference is where your contingent offer is in the sales process.
- Ideally, as a seller and buyer, you are already far along in your current home’s escrow period – past your buyer’s inspection, loan and appraisal contingencies.
- If you’re not that far along, but are under contract in your current home, sellers may still entertain your offer, but you’ll have fewer of them who may choose to do so.
- If your home is on the market but you have yet to accept an offer, there will be fewer still, willing to consider an offer from you.
- If you aren’t yet on the market, your chances of a seller giving you a chance is slim.
Another thing to keep in mind is that contingencies can be more than two levels deep. Your buyer might also be contingent on their property successfully selling. What about your buyer’s buyer? They could also be contingent! We’ve been involved in successful deals that have gone four levels deep.
As you attempt to enter into a contingent contract with a home seller, their listing agent is likely to ask about your buyer, and whether or not their buyer is contingent. In these situations it very helpful for all of us agents involved to remain in touch with one another so that everyone is aware of timelines. This can be beneficial to keep everyone on task.
Frequent updates to the seller are definitely appreciated as milestones are reached in your home’s escrow. It is always a good thing to keep things moving smoothly and happily along.
A seasoned real estate agent, well-versed in contingent sales like these, is vital to your success. As experienced agents, we know the steps to take in setting up your offer, and the language to speak to appeal to seller’s and listing agent’s hot buttons. Be sure to ask your potential agent to describe their experience with contingent sales like these to ensure that you’re aligning with a professional who can get you across the finish line.
The way most people in this situation achieve success is by trusting the process and taking the leap of faith required to list their home for sale.
But do expect that this undertaking will, at times, be stressful and even a bit maddening. This is where choosing the correct agent to help you is crucial. When interviewing agents to potentially hire, attempt to gauge which agent is likely to be the most calm in stressful situations. After all, why even begin the process only to give up due to stress halfway through? A steady agent can be the difference between success and potential failure.
Once you have chosen an agent, have them prepare a list of comparative homes like and near yours that have most recently sold. Based on the sales prices of these homes, set realistic expectations that the offers you receive may be anywhere in between the lowest and highest on the list. If you receive a low offer, send the buyer a counteroffer to see how they reply.
Once your home is on the market, begin seriously searching for, and visiting, properties that are good candidates for your next home. As you find homes that show promise, as your buyer’s agent, we will contact the listing agent to ask if their seller would entertain a contingent offer. If no, move on to those who say that they might. You can always come back to the ones who originally say no, once you’re in a stronger position, if those homes are still available. If they are still available, they may now be in a weaker position simply by being on the market longer. The longer a home is on the market, the more willing some sellers become to contingent offers. So, it is always worth a shot.
Some strategies to employ on the sale of your home are to close escrow and then rent the home back from the buyers – which by then will be the new owners of your home.
Don’t be overly fearful of asking for free rent back. All that the buyer can say is no. This puts you in the perfect driver’s seat to get your now non-contingent offer accepted for your replacement home, as you now have the proceeds from the sale of your home in your bank and immediately available.
Have the buyer of your home do their inspections and negotiate any repairs with you quickly so that they can remove those, and as many other contingencies as possible for the purchase. This will put you in a stronger position on the buy-side by making you look like much more of a sure bet to the seller of your potential new home.
We have had many clients in these contingent situations. Some sold their home more quickly than anticipated and ended up being the strongest of buyers due to their home’s sale closing before they found their replacement, making them cash buyers.
For others it took just the right amount of time and they were able to purchase the replacement home that they desired and close concurrently on both their home’s sale and their new one on the same day.
For others the sale took longer and they missed out on a home – or homes – that they wished to purchase, but could not, due to the sale of their existing home taking longer. But, in the end, they ended up achieving their goal of moving and got great homes that they were extremely happy with.
You will need to decide whether or not you want to make the sale of your home contingent on finding a suitable replacement home. Most sellers do – but not all. Some forgo this contingency and simply sell their home while searching for another one. If a replacement is not found, then these sellers need to find a place for themselves and belongings to live. Usually these buyers rent a home or apartment on a month-to-month basis.
To help pass this time without a permanent home, we have had clients in these situations go on an unplanned vacation. Others have opted for vacation rentals. Some have bunked with family members temporarily. One client of ours was even lucky enough to rent a home in the same community, just steps away from where they eventually purchased their new home!
Storage units or PODS can be used to store the bulk of their possessions until the new home is found. There are also some moving companies that will not only move you, but, will also securely store your possessions for a short time period.
Sellers need to carefully consider these points when thinking about making a move. The good news is that all of the clients we have successfully guided through this type of transaction, were thoroughly happy with the result and that they went through the effort to make this happen so that their new home better for their current way of living.
If this situation applies to you, we would be delighted to speak with you about unique strategies that might make your transition successful – and less stressful. Please be sure to contact Ken Tritle, San Diego Realtor® by calling or sending a text message to 760-798-9024, or email firstname.lastname@example.org.