Should I Accept a Contingent Offer on My House?

Receiving an offer on your home is a significant step. However, many offers include specific conditions that must be met before the sale can be finalized. A contingent offer means the purchase agreement depends on certain prerequisites being satisfied by either the buyer or seller.

Understanding Contingent Offers

A contingent offer is a real estate contract where the sale’s finalization depends on specific conditions being met. If these conditions are not fulfilled, the buyer can withdraw without penalty, and their earnest money deposit is usually returned. Earnest money, typically 1% to 3% of the sale price, is a good faith deposit held in escrow to show buyer commitment.

Common contingencies include: A financing contingency, also known as a mortgage contingency, makes the sale dependent on the buyer securing a mortgage loan. If financing isn’t obtained, the buyer can cancel the contract without losing earnest money. An appraisal contingency ensures the property appraises for at least the agreed-upon purchase price. If the appraisal is low, the buyer can renegotiate or terminate the agreement.

Another common condition is the inspection contingency, allowing the buyer to conduct a professional home inspection. If significant issues are revealed, the buyer can request repairs, negotiate a price reduction, or withdraw from the contract. Finally, a sale of buyer’s home contingency means the purchase of your home depends on the buyer successfully selling their current property. This protects the buyer from carrying two mortgage payments but adds uncertainty and potential delays for the seller.

Key Considerations When Evaluating an Offer

When evaluating a contingent offer, consider factors beyond the price. The buyer’s financial standing, especially with a financing contingency, indicates the deal’s likelihood of progressing. A buyer with pre-approval, a conditional commitment based on verified financial information, is stronger than one with only a pre-qualification, an initial estimate. A larger down payment also signals greater financial stability and reduces lender risk.

For offers contingent on the buyer’s home sale, its status is important. An offer where the buyer’s home is already under contract is more favorable than one merely listed or not yet on the market. Understanding local market conditions for the buyer’s home helps gauge the probability and speed of their sale. In a strong market, a buyer’s home might sell quickly, reducing this contingency’s risk.

The length of the contingency period is also important; shorter periods expose the seller to less risk. A 30-day financing or inspection period is more appealing than a 60-day one, as it moves the transaction closer to closing sooner. Overall terms of the offer, including purchase price, earnest money, and closing date, are also important. A higher earnest money deposit demonstrates greater buyer commitment and provides compensation to the seller if the deal falls through without cause.

Sellers can negotiate terms to mitigate contingency risks. Requesting a shorter contingency period accelerates the process and minimizes time off the market. For home sale contingencies, sellers may include a “kick-out clause.” This clause allows the seller to continue marketing and accept backup offers. If another offer comes in, the original buyer has a short timeframe (usually 24 to 72 hours) to remove their home sale contingency and proceed or withdraw, allowing the seller to accept the new offer.

Navigating the Contingency Period

Once a contingent offer is accepted, focus shifts to monitoring each condition’s progress for timely fulfillment. The contract outlines specific deadlines, which both parties must adhere to. Open communication among all parties, including real estate agents and legal counsel, is important to track milestones and address issues promptly.

During the contingency period, the buyer arranges a professional inspection. The report may lead to requests for repairs or credits. If the appraisal is lower than the agreed price, the buyer may need more cash, the seller might reduce the price, or both could compromise. If the buyer’s home sale is a contingency, tracking its progress from listing to closing is necessary.

If a contingency is not met within the agreed timeframe, the buyer can terminate the contract. The earnest money deposit is usually returned to the buyer, provided they adhered to the contract terms. The property then returns to the market, allowing the seller to pursue other buyers.

Given the potential for contingent offers to fall through, sellers might consider accepting a backup offer. A backup offer is a legally binding agreement positioning another buyer to purchase the home if the primary contingent offer fails. This provides a safety net for the seller, minimizing time off the market if the initial deal collapses. The backup offer becomes active only if the first contract is terminated and includes its own terms and earnest money deposit.