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The Risks of a Contingent Contract to Buyer & Seller

A contingency contract is when a buyer needs to sell their home in order to buy a new one.  This contingency allows them to cancel the purchase without a loss of earnest money if their current home doesn’t sell or doesn’t close.  There are a lot of risks to BOTH sides of a contingency contract

The risks to the seller are somewhat obvious but therisks to the buyer are often overlooked or not fully explained.  For a seller, contingent contracts are not preferable because there’s an extra layer of uncertainty because now they have to worry about their buyer closing and their buyer’s buyer closing.  The original buyer might get their loan fully approved and have no inspection issues but if the buyer’s buyer doesn’t qualify, the domino effect means the seller isn’t closing either. Depending on the market, most sellers will require that a contingent buyer be under contract, maybe even past their buyer’s option period. 

In this situation, it’s important to remember that as a buyer there are a lot of “outs” in the contract but it’s close to impossible to get out of a deal as a seller (always consult an attorney).  So imagine you get your house under contract so you can purchase a house you like.  Once you’re under contract, you’re selling it unless the buyer backs out.  If the seller of the house you’re trying to buy gets another non-contingent offer before you can remove your contingency, they can move on to the next buyer and you will be left scrambling for a place to move to because you can’t get out of the sale of your home.  Also, what if the inspection reveals things you’re not comfortable with?  You’re still selling your home.  And the seller knows this so you won’t have much leverage in the repair negotiations. 

Having said all this, the fact is that most people have to sell in order to buyand contingency contracts go through all the time.  It’s critical to have excellent representation by a seasoned and skilled Realtor.  Not only for your protection but because it will help you get your offer accepted.  When I’m representing a seller and we get a contingent offer, the next thing we’re going to consider after looking at terms is the agent making the offer.  Are they experienced?  Do they have a great reputation for getting deals done or are they a new agent just learning the ropes, unskilled in overcoming obstacles?  If you are planning on moving up in Steiner Ranch, give Elicia a call.  Not only does she have a competitive Move-Up program, she has almost 2 decades of experience handing successful contingency sales.  Also, if you do a contingency contract, you’ll most likely need to use a “Seller’s Temporary Residential Lease” more commonly referred to as a “lease-back” – learn more about that here.  

Learn More about The Seller Temporary Lease or “Lease-Back” here.

When are Earnest and Option Monies Due and why?  Learn More here


Elicia Michaud

Elicia Michaud

Broker AssociateCLHMS, CNE, SRS, ABR, CRS, e-Pro, PSA