How to Buy a Home Contingent on Selling an Existing Home
Buying a home contingent on selling an existing home looks like it is coming back in Sacramento. The purchase contract for that contingency has been revised, which is actually pretty good for sellers. We have not seen very many contingent offers to buy a home in Sacramento for years. The way a contingent offer works is when a buyer makes an offer to a seller that is contingent on (or subject to) the buyer successfully closing the sale on her own home.
It’s often difficult to buy another home when you have a home to sell. Making an offer contingent on selling doesn’t always go over well. Especially if the home you want to buy is desired by so many other buyers who do not have a home to sell and hence no contingency. These others buyers can waltz in, plop down an offer that says: here’s your cash, I’ll get a loan and close. Easy peasy. So, contingent buyers are forced to compete with non-contingent buyers and, in hot seller’s markets, that puts a contingent buyer at a huge disadvantage. What’s a seller gonna do when she’s looking at Offer A at the same price as Offer B except Offer B has a contingency? She’s gonna take Offer A.
But the Sacramento real estate market shifted a bit over the summer. We have more inventory now. Interest rates are edging up, which puts downward pressure on prices. I get a kick out of the way our N.A.R. chief economist Lawrence Yun spins it as: rising interest rates gives us a smaller pool of buyers — the pool of buyers remains the same, it’s the price of the home those buyers can purchase that declines. This market is more conducive to an offer contingent on selling.
It’s like a domino effect, though. If the buyer for the buyer’s home can’t close, then the buyer can’t close. Underwriting conditions are stricter, too.
However, the revised 11/12 C.A.R. Contingency of Sale or Purchase of Other Property offers sellers by default the right to continue to market the home for sale and to accept backup offers. If the seller accepts a backup offer, the seller is free to give the contingent buyer 3 days notice to remove the contingency to sell her home. In other words, the seller can pretty much kick out the contingent buyer if the buyer doesn’t release the contingency.
It’s no skin off the seller’s nose to accept an offer contingent on selling. Because you know what normally happens when a listing is sitting in MLS in active status with a pending rescission modifier? Other buyers see it and realize somebody else wants that house, and the desirability shoots way up. I know it’s odd but that’s the way it works. Some Sacramento listing agents might not know that they are no longer forced to change the status to pending with a contingent offer.
Call Elizabeth Weintraub, Lyon RE, to buy or sell a home in the Sacramento four-county area at 916.233.6759. I’ve been at this for almost 40 years now.