April 7, 2007 at 7:56 pm
· Filed under Buyers, Real Estate Bites, Sellers, Sparks from Sparky
Okay, so you’ve outgrown your current home. The new arrival turned out to be twins, your husband’s mother decided to stay a little bit longer than you had anticipated to help out, and you haven’t parked your car in the garage for years! That ’spacious’ rambler you bought as newlyweds is literally busting at the seams!
So what’s the best strategy for buying your next home?
Is it better to put your house on the market first, get it under contract with a qualified Buyer, and then find your new home?
Or, should you go out and find just the perfect house first, THEN put your house on the market?
There are pros and cons to both approaches. As a real estate professional, I’ve worked it both ways. Many times, it depends on current market conditions. In a fast market, Sellers are less likely to entertain accepting a Contingent offer (this is a contract offer that is contingent - dependent or conditioned upon - the sale of your current residence) . By the time you’ve got the contract negotiated and signed around, another Buyer comes along and ‘bumps’ the contingent offer. However, in a slower market, Sellers may be more motivated to accept a contingent offer. As the saying goes, ”A bird in the hand is worth two in the bush.” In a slower market, a contingent offer is better than no offer. Make sure that you are working with a local real estate agent who knows the current dynamics of the market, and can counsel you accordingly.
Just so you know, most Sellers will perceive a contingent offer as being a weak or less-than favorable offer. Remember that the Sellers have time-sensitive plans and goals as well . By accepting your ‘contingent’ offer, they are taking on certain risks. While their home will most likely continue to be marketed for sale, it typically doesn’t gain the amount of attention or exposure from Buyers that it normally would if still fully available. As such, most contingent offers are submitted at full price. Knowing that a contingent offer puts them behind the 8 ball to begin with, most Buyers will realize the importance of acccomodating the Sellers with either price or other considerations. Additionally, if their home has only been on market for a short period of time, Sellers are not usually not as willing to consider contingent offers.Â
In my experience, most of my Clients have found greater success by putting their current home on the market and getting it under contract first before going out to look for the next home. Many times, they can negotiate an extended closing with their Buyers, to afford them more time to find the right home. Once your home is under contract, it allows you better position for negotiating.
Recognize that there are risks and stresses associated with either direction. If you try to submit a contingent offer, there is a chance you will be ’bumped‘ by another Buyer and lose out on the house. It can be extremely heart-wrenching to invest your time in finding just the perfect ‘next’ home, only to lose it to another buyer because your offer was ‘contingent.’
On the other side of the coin, if you decide to get your current home under contract first, there can be a sense of added pressure in finding your ‘next’ home within a reasonable amount of time, and the fear of what happens if you don’t find it? Where will you live?
Making the best decision to suit your specific needs and goals will depend on several issues:
- What are the current market conditions? Is it a ‘fast’ or ’slow’ market? Are Sellers willing to accept contingent offers?
- What is the current inventory of homes available for purchase in the area you are looking? What are your chances of finding that ‘next’ home in a reasonable time frame?
- How long will it take you to get your current home under contract? Have you prepared it for market? Will it show well? Have you priced it aggressively?
Having the trusted counsel of an experienced real estate professional will help you to better understand the current market conditions, sort through all of your options, and make intelligent, well-informed decisions.
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where’d you find that ‘cart before the horse’ image? Great illustration… good reasoning.
Rich: great article! I’ve often wondered how people make this decision. I guess it all comes down to one’s own level of comfort with the risks of each scenario.
Another factor to consider is how long has the house you want to buy been on the market. I find most sellers reluctant to take a contingency contract regardless of whether the market is fast or slow, if they have only been listed a short amount of time. In my part of Connecticut, a contingency contract is known as a “HUBBARD” contract. I have no idea of the origin of that term. I remember it showing up sometime around the early 80’s. Prior to the 80’s (yes, I’m that old), there was no such animal.
There are some interesting differences in regional terminology. Rich’s article refers to a “bump” clause. In other parts of the US I’ve seen it called a “kick out clause”. It’s no wonder licensing is specific to each state. The lingo alone can cause confusion across state lines, not to mention the differences in laws.
Sparky wrote @ April 8th, 2007 at 9:14 am
Linda, that’s a really excellent point and one that I should have mentioned. There are so many variables and nuances in writing a contingent offer, I wanted to try and cover the main points as best as possible without getting too wordy.
Maureen, it’s part of a clip art collection from disc. Worked well for this article!
Buckwheat, each person has their own individual comfort zone. There is no right or wrong answer here, simply understanding the market dynamics, and determining the best avenue of approach for each specific case.
Rick and I just put our own house on the market this week. Contingencies are not an option in our market right now and we need a bigger home. We have decided to sell first and then buy. It’s important to know what your market is doing, to work with a real estate professional that knows the inventory and the trends. Talk about a timely article!
Sparky wrote @ April 10th, 2007 at 7:36 am
Ines - when our family made the decision to move here from Kansas, I put my own house up for sale. I don’t think I would do that again. It’s hard being objective. The company that I work with here doesn’t allow you to list your own properties. I think there is wisdom in that. But I hope you the best of luck and that your home sells quickly!
Rich,
Good timing on this article for our Kitsap County area. We are seeing so many more contingent offers being accepted almost an unheard of the last several years. You have touched on issues for both the buyer and seller to consider. I agree there is no pat answer you have to look at all the pros and cons. Marie
Hey old buddy (and counsel),
Your article very well outlines the issues (and rationale for acceptance) of a contingent offer. I will use your well chosen words to summarize for some of my clients the pros and cons of their making such an offer.
Lyle
Sparky wrote @ April 21st, 2007 at 4:43 pm
Lyle - Thanks, man! I am glad to have you in the Blogosphere along with me!
There is yet another downside to a Contingent offer for the Buyer. Whether or not they end up buying the home, they have to keep to the timelines-10 days to get an inspection at aprox. $350.00, for example, and then if they are ‘bumped’ they are out the money and the negotiation power at that point. Just so the Buyers know the full score.
Sparky wrote @ April 26th, 2007 at 3:42 pm
Sheryl - yes, that is one of the risks. But then, I normally add language into the contract that allows for the inspection time frame to begin upon waiver of the contingency. That was the Buyer isn’t risking losing money….thanks for stoppin’ by and sharing your input!
[...] Putting The Cart Before The Horse: Making A Contingent Offer by Sparky [...]
[...] Putting The Cart Before The Horse: Making A Contingent Offer; by Sparky [...]
[...] A while back, I wrote an article entitled, “Putting the Cart before the Horse: Making a Contingent Offer.” It was written specifically to advise Buyers on the pro’s & cons of writing a contingent offer. This time, I thought I would offer up some helpful counsel for Sellers on how to respond to contingent offers. [...]
Great information, easy to follow … Very well written article!
[...] Is it better to put your house on the market first, get it under contract with a qualified Buyer, and then find your new home? Or, should you go out and find just the perfect house first, THEN put your house on the market? Check out the entire article on soundbiteblog.com. It’s a great article! [...]
ARDELL wrote @ February 5th, 2008 at 9:24 am
Congrats Rich!
This post made Larry Cragun’s Magnificent 7 for 2007.
[...] 5– Putting the Cart before the Horse: Making a Contingent Offer byRich Jacobsen o what’s the best strategy for buying your next home? Click Here [...]
[...]  Putting the Cart before the Horse: Making a Contingent Offer byRich Jacobsen o what’s the best strategy for buying your next home? Click Here [...]
Hi Rich,
Very nicely written and “sound” advice!
Rich, I just put my own house up for sale. We did purchase a home before selling ours. I, personally, would not be able to deal with the stress of finding just the right home for my family and moving more than once is out of the question for me. Fortunately, being a real estate agent, I was able to price my house correctly and get it into escrow in less than a week. As you said, it’s a personal choice and each option has its own advantages and disadvantages. Congrats on the pick!
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