You just attended an open house and it looks like you found your dream home. You want to make an offer immediately, but your current home is still on the market. You don’t want to miss out on being first in line as a prospective buyer, but your budget won’t stretch to two house payments. This could be the perfect time for a contingent offer.
What is a Contingent Offer?
A contingent offer means that you agree to buy a house — as long you can sell your current home first.
There are two types of home sale contingencies:
Sale and settlement contingency
A sale and settlement contingency focuses on a plan to sell your home. You’ll need this contingency if you haven’t yet received and accepted an offer to purchase your current home.
This type of contingency typically allows the seller to continue to market their home to other potential buyers. If they get another offer, you’ll typically have 24-48 hours to remove the contingency and move forward with your offer without it.
If you can’t remove the contingency, your contract will be terminated. The seller can accept the other offer, and will give you back your earnest money.
A settlement contingency applies if you have already marketed your property, received and accepted an offer, and have a closing date set. This contingency is an escape hatch in case the sale of your current home falls through at the last minute and you can’t buy the new home.
This type of contingency typically prohibits the seller from accepting other offers for a specified period, usually your closing date for the sale of your own home. If your home closes by that date, the contract is valid.
If your home doesn’t close, your contract is terminated, and the seller will return your earnest money and can move forward with another offer.
When a Contingency Offer Makes Sense
If you need to sell their existing home to purchase a new one (especially if you are upgrading to a more expensive home) you need time to arrange the sale of your original house before you can commit fully to buying your new one. Otherwise, you could get stuck with two houses and two mortgage payments waiting for your first home to sell.
The home sale contingency gives you peace of mind, and makes scheduling your eventual move easy. You’ll be able to go seamlessly from closing on one home to closing on the next in a matter of just a few days.
Making a contingent offer can help you protect yourself, but be aware that a contingent offer may be less attractive to a prospective home seller. If you’re in a competitive market, a seller may not entertain an offer with a contingency attached.
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