Many Buyers jump to the conclusion that they must sell their home before buying a new one. So naturally, therefore, needing to include a home sale contingency when submitting an offer. This contingency certainly exists for a reason and should be included when necessary, but sometimes a buyer and their realtor assume it is needed when it isn’t. Stay tuned to learn why this can be a massive problem for a buyer.
If we haven’t met, my name is Desiree Renshaw, a realtor in beautiful Spokane, WA. In this blog, I will present a few things to be aware of, the hiccups that can come along with this contingency, and why a Buyer should only use it when necessary. So let’s jump right in.
Chat with your lender
Because many Buyers utilize the equity in their home to cover the closing costs and downpayment to purchase their new home, it seems obvious that to buy, you have to sell, and so you want to include a home sell contingency with your offer. Meaning (in the most basic terms) that you have to sell your home to purchase the new one, and if you cannot sell, you cannot buy the new house. If this causes the deal to fall apart, this contingency protects the Buyer’s earnest money. In some situations, these facts are true, and a home sale contingency is essential. However, ensure that you have an in-depth discussion with your lender about other alternatives and if those options work for you. For example, can you access alternative funds that cover your minimum downpayment? For example, savings, retirement, gift funds? If this is an option, instead of including the home sale contingency, one would include evidence of funds showing full transparency on where the funds are coming from and how liquid they are, which also helps protect the Buyer. If you choose not to include the contingency, it doesn’t mean you don’t have to sell. You can still get that process moving along, but in a timeline that works for you instead of the pressures, the timelines in the home sale contingency put on you. Chat with your lender about the possibility of a recast and then sit down with your realtor and a calendar and map out your ideal dates and hypotheticals. An educated game plan!
Why is this helpful?
Great question. For one, if you find yourself in a multiple offer situation, it is doubtful the Seller will choose the contingent offer. Second, if your contingent offer is accepted in Spokane, the home will remain on the market as contingent bump clause. So while the Buyer frantically preps and lists their home to sell, the Seller can continue to show their house and accept another offer. The Seller will send the Buyer a bump if another offer is accepted. At that time, the Buyer can back out of the contract and retain their earnest money or waive the home sale contingency and move toward closing without that protection intact. So, suppose the Buyer decides to end the contract. Wow, that was a lot of work to end up without the home they love. However, the risk of waiving the home sale contingency is enormous! Finally, suppose a Buyer stays under contract and chooses to WAIVE their home sale contingency. Did you know that in that case, the Buyer agrees to waive all other contingencies, such as financing, home inspection, title, and homeowners, and move toward closing without the added protection? This puts their earnest money at risk if any issues arise for the Buyer, making it challenging to close. Think about it, if you could waive this contingency because of the bump, why would you have included it in the first place? If you had never included it, you would be in a better position with all the other protection still intact.
Buying a house and moving is one of the most emotional and stressful things you can go through,
so working with a knowledgeable, trustworthy Realtor can relieve any unnecessary stressors. This short blog only touches on the basics of this addendum and how it works in the contract. If you have more questions, please ask! Comment below or reach out through desireerenshaw.com.