When home owners are out shopping for a new home and find the perfect place, sometimes they need to sell their current home before they can afford to buy the next one for two primary reasons. The first is without selling their existing home they may not be able to qualify carrying two mortgages at once. Secondly, home buyers need the equity in their existing property to use as a down payment and for closing costs on the next purchase. When a buyer presents an offer that is dependent upon selling their existing home, it’s called a “contingency” clause.
As a seller, there are a couple of things you need to consider when reviewing an offer with a contingency clause. The clause may read something to the effect of, “Our offer is $300,000 and contingent upon selling our existing home.” Should you accept such an offer? That’s between you and your real estate agent but there are a couple of things that should be cleared up.
First, review the quality of the offer. If the offer is fair, next look at the quality of your buyers. Have they been preapproved at their mortgage company? If so, do they have a preapproval letter they can provide? A preapproval letter from a lender will indicate that the buyers have applied for and have been preapproved for a mortgage loan and all that’s waiting is finding the perfect home. If your buyers have such a letter, then you need to tap into your real estate agent’s skillset and review your potential buyer’s existing home.
Is the property currently listed and if so, is the property listed at a fair price? Your real estate agent can tell you whether or not the home is priced aggressively for a quick sale or the price is a little too high for the area, meaning the home will take longer to sell.
If you discover that your potential buyers have yet to apply for a mortgage and don’t have a preapproval letter in your hand, all things being equal you may want to consider other offers. Second, if their home is not yet on the market or your agent feels it’s a bit overpriced, it will take longer to sell, if at all. Especially in the time frame indicated on your sales contract.
If either of these conditions is not met, or you don’t feel fully satisfied that they have been, take a long hard look at a contingency clause. If you have no other choice, you might consider one, but if there are other offers lurking, you may want to move to the next buyer.