Homeowners have several options for selling their home and buying a new one. Last week, we explored sell and rent-back agreements. Another option is to make a contingent offer. While several types of contingent offers exist, in this case we're referring to the contingency that your current home sells.
How a Contingent Offer Can Help You
A contingent offer puts a viable hook in your dream home, even before you’ve sold your current home. Acceptance of your offer “locks in” the home for a limited time.
The trade-off is that contingent offers can be more expensive than sell and rent-back agreements. The seller may continue marketing their property after accepting your offer. Because buyers are less likely to investigate a home they may never own, the seller may expect a higher offer from you. And if you lose out to stronger offers, you forfeit anything you spent on inspections, appraisals, and bank fees.
Nonetheless, contingent offers bring happy endings every day, so let’s continue.
How It Works
If you choose this route, your agent will attach the Contingency for Sale of Buyer’s Property (COP) form to your offer. This addendum protects both buyer and seller.
Barring any pesky back-up offers, you’ll agree on a timeframe to move your property through escrow, and you’ll be expected to keep the seller informed about your escrow status.
If your home is in escrow, you must state when that escrow is expected to close, with proof, within five days of the seller accepting your offer. Often, the close of your escrow date can conveniently match the close of the seller’s, allowing you to move out of one home and into the next on the same day.
If your home isn’t yet in escrow, you and the seller will negotiate a time limit to make that happen. The COP form suggests 17 days.
If your escrow is cancelled, both you and the seller have the right to cancel the agreement.
Things get complicated if the seller accepts a back-up offer. The COP form’s “kick-out clause” requires you to:
- Remove your contingency within three days (or another timeframe you and the seller have arranged)
- Remove any loan contingency
- Prove you can purchase the home without selling your current home
- Perform any other agreed-upon requirements.
If you don’t meet these requirements, the seller can immediately cancel your offer.
Don’t be hasty about removing your contingency. Once you have, you may no longer legally cancel the agreement—even if your property falls out of escrow!
In general, you should list your home first and make your contingent offer second. If you make an offer before listing your home, it may not be taken seriously.
Next week: Pocket listings!
Is this method of buying and selling simultaneously what works best for you? Call us at (831)818-4321, or contact us here.