The Real Estate Blog

The Pros/Cons of a Home Sale Contingency for a Buyer

The good & the bad of a home Contingency For buyers.

Most buyers need to sell their existing home in order to purchase a new one. This is especially the case for home buyers that are looking to trade up. The home sale contingency gives buyers the time they need to sell and mitigates their risk to ensure they don't lose their deposit.

In doing this however, it is shouldering the burden of risk on the seller. By accepting a home sale contingency, the seller is losing marketing time and possibly other opportunities in selling their house. It essentially becomes a little of a gamble for the sellers. They are gambling that the buyers house will sell quickly. It’s also a process that the seller’s have very little control over. For instance, the seller can’t make a buyer stage their house a certain way to make it more attractive or force them to reduce the price. They are stuck in a holding pattern doing a little hoping and praying.  

The Pros for Homebuyers are:

  • Avoiding owning 2 Homes & paying 2 Mortgages
  • Being able to "lock'' in the next house so they don't end up homeless
  • No risk to the Buyer’s deposits should they not be able to sell their house.

The Cons for Homebuyers Are:

  • They will still need to move forward & pay for home inspections, Bank fees as well as appraisal fees. Should the deal fall apart, none of those costs are reimbursed to the buyer.
  • A buyer may potentially need to pay more for a property then compared to if they were to make an offer without the Home Sale Contingency. The reason for this is that the seller is taking on more risk of a buyer’s ability to perform. Therefore, they will want to be compensated for that risk.
  • Should it be a multiple offer situation then chances of winning the bid are greatly decreased unless the buyer pays far over and above the next competing offer....

What is A Home Sale Contingency?

What is A Home Sale Contingency?

A home sale contingency is a clause in an offer that states the execution of the offer is only if the buyers home goes under agreement and successfully closes.

These contingencies are often times used by buyers when they are planning on using proceeds from the sale of their home to purchase the next one.

So, how does it work? It’s important to remember that a home sale contingency can be structured in Many different ways. But let’s say the buyer needs to sell 123 Main Street. The Home Sale Contingency will be in the offer that the buyer extends to the seller. The offer will be like any other offer with regards to price, deposits, inspections. The difference is that the actual execution & closing on the property is all based on whether the buyer’s home at 123 Main Street goes under agreement and closes.

If the buyers house at 123 Main Street goes under agreement by a specified date, then the contract moves forward. If it does not sell, then the contract is terminated and the deposits are released back to the buyer.

If you couldn't tell, these clauses are here to protect the buyer, not the seller and are only applicable to home buyers who want or need to sell a home Before they Buy a new home.

There are two separate types of home sale contingencies that are used at different times. These contingencies are the:

Sale and Settlement Contingency and just the Settlement Contingency

So, what’s the difference between the two and when is each correctly used.

If you are a buyer & your home has already gone under Agreement then you will want to use the Settlement Contingency. Simply put, this contingency protects the buyer should their sale fall through...