How to Buy a House Contingent on Selling Yours

Buying a house often involves complex financial and logistical considerations, especially when the purchase depends on selling an existing property. This strategy allows a buyer to secure a new home while relying on the proceeds from their current residence to fund the transaction. The process involves distinct steps and careful planning.

Understanding a Contingent Purchase

A contingent purchase in real estate refers to an offer to buy a new home that includes specific conditions which must be met for the agreement to become binding. Buyers frequently opt for a contingent offer because it prevents them from carrying two mortgage payments simultaneously or needing the equity from their current home for a down payment on the new one. This approach provides a safety net, allowing buyers to back out of the deal without financial penalty if their current home does not sell.

Key terms associated with this type of offer include a “sale contingency” and a “kick-out clause.” A sale contingency explicitly states that the purchase agreement can be terminated if the buyer’s current home does not sell by a predetermined date. This clause protects the buyer, ensuring they are not obligated to purchase the new property if their existing one remains unsold. The “kick-out clause,” also known as a “right of first refusal” or “release clause,” is a provision often included by sellers. This clause allows the seller to continue marketing their property and accept backup offers, even after accepting a contingent offer. If the seller receives a stronger, non-contingent offer, they can activate the kick-out clause, giving the initial contingent buyer a short timeframe, typically 24 to 72 hours, to either remove their sale contingency and proceed with the purchase or allow the seller to accept the new offer.

Preparing for a Contingent Purchase

Before making a contingent offer on a new home, prospective buyers should thoroughly assess their financial standing. This includes understanding the equity in their current home, which represents the portion of the property they truly own. Obtaining a mortgage pre-approval for the new home is an important step, even with a contingency, as it demonstrates financial readiness to sellers. Buyers should also evaluate their capacity to handle potential temporary overlaps in mortgage payments, should their existing home sale be delayed.

Preparing the current home for sale is another important step that can significantly influence the success of a contingent purchase. Practical advice includes addressing necessary repairs, decluttering spaces, and considering professional staging to make the home more appealing to potential buyers. Professional photography is also highly recommended to showcase the property effectively in online listings. These efforts are aimed at attracting buyers quickly, which is important for a contingent sale.

Strategic pricing of the current home is important to ensure a swift sale. Real estate agents can provide a Comparative Market Analysis (CMA), which compares the home to recently sold properties of similar size, condition, and location. Pricing the home competitively, sometimes even slightly below market value, can generate more interest and potentially lead to multiple offers, accelerating the sale process. Overpricing can cause the home to linger on the market, which is detrimental to a contingent purchase timeline.

Choosing an experienced real estate agent who understands contingent sales is also important. An agent familiar with these transactions can provide guidance on market conditions and help market the current home effectively. They can also advise on how current market conditions, such as whether it is a seller’s or buyer’s market, might impact the viability and attractiveness of a contingent offer. In a competitive seller’s market, contingent offers may be less appealing to sellers who have multiple non-contingent options.

Making Your Contingent Offer

When drafting a contingent offer for a new home, the sale contingency clause is a central component. This clause typically outlines a specific timeframe, often 30 to 60 days, within which the buyer’s current home must be sold. It also details the conditions under which the contingency can be removed, such as the current home going under contract and progressing towards closing. This contractual language provides clarity and protection for the buyer, allowing them to withdraw from the purchase without penalty if their home does not sell within the agreed period.

Understanding the kick-out clause is equally important, as it directly impacts the contingent buyer’s position. This clause grants the seller the ability to continue marketing their property even after accepting a contingent offer. If the seller receives another offer, particularly one without contingencies, they can activate the kick-out clause. The original contingent buyer is then typically given a short window, usually 48 to 72 hours, to either remove their sale contingency and proceed with the purchase or forfeit the deal. This mechanism protects the seller from having their property tied up indefinitely by a contingent buyer.

Other terms within the offer can also make it more appealing to a seller. Earnest money deposits, typically ranging from 1% to 3% of the purchase price, demonstrate the buyer’s commitment. In a contingent offer, the handling of this deposit is usually outlined to ensure its return to the buyer if the contingency is not met. Flexible closing dates or minimizing other buyer-side contingencies, such as those related to inspection or appraisal, can also strengthen a contingent offer.

Negotiation strategies are important when presenting a contingent offer, especially in competitive markets where sellers might prefer non-contingent bids. Highlighting the strength of the buyer’s current home (e.g., its marketability, competitive pricing) and their financial stability can make the offer more attractive. A well-prepared buyer, with their current home market-ready and competitively priced, presents a stronger profile. Emphasizing clear communication and a willingness to cooperate throughout the process can also improve the offer’s reception.

Managing the Contingency Period

Once a contingent offer has been accepted, the focus shifts to actively selling the current home within the agreed-upon timeframe. This period necessitates a concentrated effort on marketing activities, including open houses, private showings, and online promotion. The urgency to secure a buyer for the existing property is heightened, as the new home purchase depends on this sale. Adhering to the timeline specified in the sale contingency clause is important to maintain the integrity of the offer on the new home.

Clear and timely communication among all parties involved, including the buyer, seller, and their respective real estate agents, is important throughout the contingency period. Regular updates on the progress of the current home’s sale can help manage expectations and build trust. This transparency can be particularly helpful if any adjustments to the timeline become necessary. Maintaining open lines of communication helps ensure a smoother process for everyone.

If the seller of the new home receives a stronger, non-contingent offer, they may activate the kick-out clause. Upon activation, the contingent buyer is notified and typically has a limited time, commonly 48 to 72 hours, to decide whether to remove their sale contingency and proceed with the purchase or allow the seller to accept the new offer. The buyer’s options include waiving the contingency and demonstrating immediate financial capability to purchase the new home, or letting the offer expire and receiving their earnest money deposit back. This decision requires a rapid assessment of the buyer’s financial capacity and willingness to proceed without the sale of their current home.

Once the current home sells and all conditions of the sale contingency are met, the contingency is formally removed. This usually involves signing a contingency removal form, indicating that the buyer is committed to the purchase of the new home. After the contingency is removed, the transaction progresses towards closing on the new property. The earnest money deposit, which was held in escrow, is typically applied towards the purchase price at this stage.

Should the buyer’s current home not sell within the specified contingency period, several outcomes are possible. The offer on the new home may be terminated, and the buyer typically receives their earnest money back, as stipulated in the contingency clause. In some cases, a renegotiation of the purchase agreement might occur, where the buyer and seller agree to extend the contingency period or modify other terms. However, if no agreement is reached, the deal falls through, and the buyer would then need to restart their home search.