“Is a Contingent Offer in the Hand worth Two in the Bush?”
September 28th, 2007 by Rich JacobsonA 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.
Looking at Webster’s definition of the word, ‘Contingent,’ I’m wondering which one is most accurate/applicable?
1 : likely but not certain to happen : POSSIBLE
2 : not logically necessary; especially : EMPIRICAL
3 a : happening by chance or unforeseen causes b : subject to chance or unseen effects : UNPREDICTABLE c : intended for use in circumstances not completely foreseen
4 : dependent on or conditioned by something else; contingent on fulfillment of certain conditions
5 : not necessitated : determined by free choice
While I know that #4 is obviously the correct answer, as being relevant to real estate, some of the other definitions could certainly apply as well. But just so we’re all on the same page here, a ‘Contingent‘ offer is when a prospective Buyer submits a contract offer on your home, but their offer is ‘contingent‘ or ‘dependent/conditional‘ upon the sale of their current residence.
In a slowing market, such as we’re experiencing here now in Kitsap County WA, contingent offers become more commonplace. Conversely, in faster, brisk Seller’s markets, you rarely see them being employed because they are quickly bumped by other competing offers.
As the market cools, and the inventory of available homes increase, Sellers are more willing and motivated to consider ‘contingent‘ offers.
As a Seller, what are the risks associated with accepting a ‘contingent‘ offer?
Well, first and foremost, here in our market area, when you accept a contingent offer, the status of your property changes in the NWMLS (Northwest Multiple Listing Service). Your home goes from being an ‘ACTIVE‘ listing to being a ‘CONTINGENT‘ listing. As such, your home is shuffled down towards the bottom of any property searches being performed by Agents accessing the NWMLS. This will effectively reduce the amount of valued exposure your home will receive.
When submitting a Contingent Offer using NWMLS Form 22B, the default contingency period is 45 days. This is the timeframe your Buyer has to get their property under contract with a viable Buyer. If another interested Buyer for your home comes along during this period, they can ‘bump‘ the first Buyer. By default, Buyer #1 has 5 days to either remove their contingency or back out of the contract, allowing Buyer #2 to proceed forward with their offer. In some instances, Sellers may tighten up or reduce these default timeframes, just to help ensure that their property isn’t tied up for an excessive period of time. Once you have reached the end of the contingency period, you can either negotiate an extension with the Buyer, or simply allow the contract to expire, releasing both parties from their obligations.
Some questions you’ll obviously want to have answered prior to accepting a contingent offer:
- Where is the Buyer’s home located? What is the market like there?
- Is the Buyer’s Home currently up for sale? If so, how long has it been on the market?
- Is it listed by a licensed real estate professional? Is it priced aggressively, according to market value?
One word of caution here: With all of the recent challenges being faced by the mortgage industry, make sure that your Listing Agent stays in constant contact with your Buyer’s Agent during the contingency period. Loan programs can change overnight. You’ll want to ensure that once their property is under contract, that they can still qualify for the purchase of your home.
A Contingent Offer is better than NO offers, especially when there are so many other competing properties for sale on the market. Just make sure that you’re making intelligent and informed decisions, and that the potential benefits outweigh the risks.
![A classic Port Gamble "painted lady"](http://soundbiteblog.com/wp-content/gallery/port-gamble/port-gamble-013.jpg "A classic Port Gamble "painted lady"")
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Sparky,
This is a great explanation of contingent offers. The market has changed and sellers need to be open to considering them. You are right on- sellers need to assess the factors associated with the sale of the buyer’s own home to make sure it is priced well and prepared properly for sale if they plan to accept the contingency.
Thanks for the great information. I would love to share it on my blog!
Yes, I loved the two bushes! Of course, I am a member of the VRWC.
Linda: So you liked my ‘Two Bushes?’
Kaye: I agree. I typically counsel my Sellers to tighten up the default timeframes. We don’t want to lose any valuable market time unnecessarily…
Mariana: How goes things in the Springs? Thanks for taking time to comment!
Sara: I feel honored that you would take time out to visit SBB. I have always been a HUGE fan of your writing as well. Hope things are going well for you in your recent move back!
Lisa: Thanks for stopping by and sharing your insights. Yes, there are tons of very nervous Seller/Buyers in the market right now. All the more reason for agents like yourself to truly ’shine!’ and help them navigate through the challenges!
Good stuff! The photos made me laugh a lot!
These are always tough.. In my area we tighten up the time frames.. 15-30 days to get sold and a 48 hour first right of refusal.. I’ve found that it makes everyone a lot more motivated if the timeframe is short then if they have a longer period to hope the contingent property sells.
This is excellent information for your area, Rich aka Sparky. There are obviously many factors that need to be taken into consideration before accepting a contingent offer.
Rich,
This is an excellent article!! Very well said! I appreciate your question, “Is it priced aggressively, according to market value?” This is key to a successful sale. It doesn’t mean getting ripped off in the sale, but certainly there’s no room today for overpriced listings.
I always enjoy reading your posts.
Hi Rich,
We are involved with a Seller who negotiated an offer on something else without the contingency to sell his home and when his offer was accepted by his Seller, he got nervous and changed his mind. I explained to him the very same scenario that you have outlined here. I told him that he could ask for a first right of refusal in the event somebody else came in and made another offer to bump his. Then he could decide if he wanted to remove his contingency. But with all the negative press, he refuses to take the chance and insists on seeing an offer on his home first. We’re seeing alot of nervous Seller/Buyers in the market right now. Great and timely post! Nice to see your friendly face around here again!