What does 'Contingent Sale' Mean in Real Estate?
What does "Contingent Sale" Mean in Real Estate?
One of the biggest challenges that people who are considering selling their home face is how to get into their next home while selling their old home without ending up homeless. I get a ton of sellers who come to me who are very nervous that they're going to sell their old house not be able to find a house to buy and they're going to end up homeless and they're terrified.
So, how can you best structure that situation so you don't end up homeless? Well, first of all, I'd like to say that to date I have never had a client who ended up homeless we help people through the situation all the time it's what we do and we love it. There are a lot of moving parts and a lot of things to consider and there are several different ways to structure it, number one you could purchase the new house first and move into it and sell the old house empty. Now, the pros of that of course are that you don't have the stress of you know the tight timelines and now your old house can sell much easier you don't have to accommodate showings and all those different things the con to that is number one you have to qualify to be able to purchase the second house without selling your old home first some people might not qualify for both of those payments in fact a lot of people won't qualify for both payments or number two the other cons is that you might end up having to make two mortgage payments at the same time which of course makes people very uncomfortable even if you do qualify you might not lovemaking that payment.
I have had clients do it and most of the time we're able to get their old home sold so fast they never end up making two payments anyway just keep in mind when you purchase your new house you're most likely skipping that first month's payment so, let's say you closed on the house in the middle of January, your first payment's not actually due until March 1st so as long as we got your old house listed at the end of January and get it sold by the end of February even though you bought your new house first you never had a month where you're making double payments.
But for the people who don't qualify or who don't want to do that we have a number of strategies that can help you know to navigate these waters of what we call a contingent sale. Now, most sellers when you're a buyer and you want to go out and make offers on homes if your offer is contingent upon the sale of your previous home most sellers are pretty hesitant about that kind of offer they're nervous because now you have two sets of things that could go wrong two inspections two appraisals two but you know the loan contingencies and there's a really good chance that the seller is going to feel uneasy about accepting a contingent offer in my experience.
However, we can usually get a contingent offer accepted as long as the old house is under contract first if your old house is not under contract first it's nearly impossible we've done it a couple of times but 99 percent of sellers will not accept a contingent offer until your old house has gone under contract first once you've got the old house under contract then you can go shopping for the new house and you say yeah it's contingent upon the sale of my other home but we're already under contract and here's the copy of our contract and it's a very solid deal and we feel confident that it's going to move forward but I hear what you're saying already but if I sell my old house first and I can't find the new house I'm going to end up homeless.
Well, here's what we do probably the best way to structure this and the way that works easiest in today's market is that the buyer who's buying your old house we negotiate with them a leaseback or post possession usually we can get anywhere from 30 to 60 days without too much pushback getting over 60 days is very very difficult because then you can only sell to investors if when you're buying a house if whoever is in the house is standing there longer than 60 days the lender is going to say that's not an owner-occupied purchase that's an investment purchase.
So, now you need 20 down your interest rate's gonna be higher all those things so for sure you need to keep your post possession or leaseback under 60 days but oftentimes 30 days is plenty because think about it if we get your old home under contract and it's not going to close for 30 to 45 days and then we have another 30 days past that before you have to actually move out of the house that gives us 60 to 75 days from the time we get your home under contract to help you identify and get your new home under contract and get it closed and we really only need 30 days to do that so it gives us a whole extra 30 to 45 days of flexibility in finding identifying and closing on your new house.
So, it's a really really great way to structure a contingent sale without the fear of ending up homeless so would love the opportunity to meet with you if that's something you would like to explore some additional options on or understand the timelines on better we help sellers and buyers do this all the time and we would love to help you as well thank you.