Contingent Offers-should you consider?

In a perfect world, of course every seller would prefer a clean, full price offer (or close to one) with a quick closing date. There are times where this scenario can happen, but this is not the rule; rather it is usually the exception.

Most offers, even if all cash with no lender involved, still have at least one contingency, if not more.  The obvious contingencies in most real estate contracts are: home inspection, financing and appraisal.  The other major contingency can be the need to sell a home or property in order to close on a purchase.

There are several considerations a seller should think about when deciding to take what I call a “sale contingency.”  Factors such as how long a seller’s home has been on the market, what kind of showing activity is the seller’s home getting, is it a buyer’s or seller’s market, what time of year is it, is the sale contingency home on the market yet, etc.?

Obviously if a seller’s home is brand new on the market, a seller may chose to decline a contingent offer for obvious reasons. He/she may opt to give it a month or so to see what kind of non-contingent offers come in.  However, if the home has not flown off the market in the first few days or weeks, a seller may need to soften his or her stance and consider contingent offers (sale contingency).

If the market is a true seller’s market (lower inventory, low interest rates, strong buyer pool), usually a seller does not have to consider a sale contingency because there are enough buyers who are non-contingent and ready to pull the trigger, however if the market is a buyer’s market (high inventory), you may see more contingent offers and a seller may have to seriously consider taking one.

Here are my observations over the past 15 years in real estate when it comes to time of year as it relates to sale contingencies: I have noticed a higher percentage of contingent offers in the “off-season” than in the “selling season,”  Let me explain, in spring-summer, most (not all) offers are non contingent.  Most buyers have sold their homes already and are in the market ready to buy.  Most buyers also know that if the right home comes available, it may go fast so they want to be in the best position to make the most attractive offer to a seller (non-contingent).

However, I have noticed more contingencies in what I call the “off-season”, meaning fall-winter.  I think this is primarily due to buyers who are not necessarily actively ready to buy, but if the right home were to hit the market, they would make an offer.  I call these buyers “right opportunity buyers.”  I have been one myself.  My home wasn’t listed at the time, but my wife and I saw a home that hit the market (it was winter time) that we just had to have.  After a quick day’s worth of cleaning and staging, we listed our home and made a contingent offer, which was ultimately accepted by the sellers.

The good news about most (not all, but most) contingent offers (subject to buyer having to sell their home) is that more often than not, most contingent offers are generally pretty strong in terms of the offered terms (price).  I believe this is because a contingent buyer knows a contingent offer is not necessarily ideal to a seller, so in order to get the seller’s attention and make it worth a seller’s time, the offer needs to be pretty good because the seller is essentially taking their home off the market for the contingent offer (I will get into first right of refusals in my next blog).

My advice to all sellers is to at least take a look at a contingent offer before disregarding it.  Most sellers know if they are in a seller’s market or a buyer’s market and can gauge the activity level of showings on their house.  It could end up being very attractive and depending on some of the factors mentioned above, may be your best (and only) and viable option.  Look for my next blog about what protections can be put in place for a seller who accepts a contingent offer, titled “Right of First Refusal.”

Mark Phillips of Hill Country Flat Fee Realty serves the communities of Boerne, Fair Oaks Ranch, Fredericksburg, Kerrville, Comfort, Bulverde/Spring Branch and parts of San Antonio. We charge a flat listing fee and are a full service real estate firm. This saves our sellers thousands of dollars every transaction.