To accept a "contingency" or not to accept a "contingency"? That is a question I've had to answer several times lately. First, what is a "Contingency"? In regarding contracts, it is a condition in a contract that has to be fulfilled before the contract is binding. So "contingency" is really just a fancy word for "condition," but in real estate contracts there are plenty of them, and they are the things that let the buyer or seller cancel the deal.
Some contingencies are common, such as, home inspections, appraisals and financing. While others are complicated, particularly in contracts that are contingent upon the sale of the potential buyer's existing home. A seller must proceed with caution when dealing with this type of contingency. Why? It is not in the best interest of the seller. I will usually discourage my seller clients from accepting a contingent offer unless I can foresee a closing date for my client.
The reason, even though the seller still has the right to market the house as "Active Contigency-Continue To Show", most Realtors feel there's no point in showing a listing that has a pending sale. That means sellers could lose out on better offers waiting on a contingency to resolve.
But since it's something more sellers might be considering in today's market, I start digging. I will ask for information on the potential buyers house listing, MLS number, and proof of mortgage approval. I like to physcially view the property myself. I'll go out and look at the wanna-be buyer's house to see if it's a viable sale and that the listing price is consistent with market trends.
Meanwhile, if the seller has chosen to accept a contigent offer, I encourage the seller to accept with a "Binding with Escape Clause". With an Escape Clause, the seller has the right to continue to market the property and accept offers even though the buyer still has a valid contingent contract. If another buyer comes along, wants the house, and makes an offer that is more acceptable to the seller, the seller has to give the original buyer notice to either pony up or walk away.
They (the buyers) don't get to know the details, just that the sellers have another good offer. If the original buyer can't come up with a way to remove their contingency, usually in 48 to 72 hours, the contract is terminated without any liability to the buyer, and the seller is free to accept the second offer.
In a perfect scenario, the seller accepts a contingent offer, the buyer sells his or her home in the allotted timeframe, and everybody is happy.
If the listing Realtor has done his or her homework, so they know they've got a viable buyer with a viable contract, it usually goes through.
A good Realtor will be able to explain everything in a contingency contract in a way the client understands, no holds barred.
Some Realtors will say any offer is a good offer, but that's simply not true. Contingent offers are more complicated than they seem.
So much good info! Great Post!
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