Would you advice accepting or declining a home contingency offer?

Asked by Ruthless, 60558 Sat Sep 29, 2007

If there are not multiple offers and there is a 72 hour right of first refusal clause, what are the advantages and disadvantages of having a home contingency contract? How would your advice differ considering the holidays are coming up verses another time of year?

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Deborah Madey, Agent, Brick, NJ
Sat Sep 29, 2007
Contingent upon the buyer selling their property? Or do they have a contract, and your closing is contingent upon their closing for necessary proceeds?

If there in no contingency detailed in the contract, but funding of the purchase money is dependent upon proceeds from the sale of another property, are defining that also as a contingency?

As a buyers agent, I try to encourage my buyers to avoid contingencies if at all possible. Most commonly, I encourage them to start marketing their property now since the time on market may take longer than expected.

As a sellers agent, if the property is new to the market, I caution the sellers against it, unless the property clearly presents itself as unique with a limited pool of potential buyers (i.e. Historic home on a busy street lacking many features typically sought by buyers and deferred maintenance.) If the property has been on the market for a while, my advice to sellers will be based upon the buyers property that needs to be sold. Is the property highly marketable? Who is marketing it? How? What is the price? If and when it has a contract, we will request review of such. There needs to be a deadline of how long the buyer has to produce a sales contract on their property. As a seller, we will continue to market their property completely and aggressively. Of course, there must be kick out clause with first right of refusal.

If the buyers property is marketable, priced right, and being aggressively represented in its marketing and representation, yes.....I will advise a seller to seriously look at an offer with a contingency. And, yes, we will continue to market my sellers property.

Of course, I still prefer a contract without contingencies. But, this is 2007, not 2004.
4 votes
Deborah Madey, Agent, Brick, NJ
Sun Sep 30, 2007

I am not sure you intended your message to be sharp, but it comes across that way. Particularly, the comment where you put "experience" in quotes might easily be interpreted as condescending.
I have certainly shared my viewpoint on this board, and Ruth, herself, has acknowledged that many (if not most) FSBO’s would be better served by a qualified Realtor. One of the greatest assets a Realtor brings to the table is objectivity and the ability to advise a seller based upon the collective views of many buyers. Notwithstanding my convictions, I still respect the right of every homeowner to make choices and decisions as they see appropriate for them.

Ultimately, whether acceptance or rejection of an offer with a contingency will depend upon the individual seller, buyer and market. No one on this board is making a firm recommendation to Ruth about what she should or should not do. Rather, there is a discussion of general benefits and drawbacks presented for Ruth, as well as other buyers and sellers to consider. I consider myself experienced and diligent, and I have learned many things from my colleagues on Trulia, most of whom are from out of state. The right decision for any seller considering any contract will depend on many details beyond this board.

I don’t believe that Ruth, nor the average consumer, is expecting this forum to be the end all to any and every real estate need or decision. Trulia does provide a source for consumers to gain better understanding. As a matter of fact, I recommend that my clients read Trulia, and encourage them to ask questions. (To my knowledge, I haven’t seen any of them, but I still suggest it.) I am confident enough in both my advice to my clients, as well as the overall integrity, experience and wisdom represented by so many of the RE Pros, that I welcome Trulian input. I find that sometimes customers need to hear the same message repetitively before accepting it. Example: Overpricing generally leads to a lower sales price. When my customers hear the same message repeated on Trulia, as I deliver, it validates, reinforces, and boosts consumer confidence in their decisions.

My financial investment decisions are made with consult of an advisor, but that does not mean that I don’t seek out information on my own. I research info about jewelry before a substantial purchase, but only buy from my trusted jeweler. I research info about medical issues quite in depth as the primary caretaker for my Mother, but I don’t diagnose or treat her. The three examples I provided represent a desire to be an informed consumer. In each of my examples, I use knowledge that I gain from outside sources to have meaningful discussions with trusted advisors, and make decisions.

I suspect that even if Ruth hired a full service agent, she would remain hands on, and that she would still post questions and answers on Trulia. And, many of those would be the same questions she asks now.

There are those few FSBOs out there that are capable of effecting a sale as successful as if they had hired a Realtor. There are those FSBOs who effect a sale, but perhaps with end results that pale compared to what they might have accomplished with a Realtor. Worse, some of them don’t know what they left on the table. Either way, it is a homeowner’s right, and we all need to respect that right.

BTW Ruth........Holidays would have little impact on my recommendation to entertain a contingent offer or not. The quality of the offer on the sale property itself, the likelihood of the buyer to sell their property, and the competitive landscape for alternate buyers for my seller would be the relevant points to consider.

5 votes
Ruthless, , 60558
Mon Oct 1, 2007
You say, "as an adviser". My agents weren't advisers. Someone suggested that I intimidated them, well that's probably true. They worked hard, no doubt about that. But they did not provide me with what I hired them for. My post here: http://www.trulia.com/voices/Home_Selling/When_do_we_give_it…
gives a good summary of why my former agents were NOT advisers. Someone else made a comment about honest mistakes verses stupid mistakes. My agents made a fair number of honest mistakes and showed a lack of good decisions. However, I didn't fire my AGENCY until after an agent hosting my open house made a serious, stupid, costly mistake.

Sorry, I'm sure you are just trying to help, but you hit a hot button. I get sick and tired of Realtors suggesting I hire a Realtor even if they do MORE HARM than the harm I do myself by being my own "agent". Oddly enough, the agent Pat with the buyers of the hypothetical contingency situation was highly recommended to me (by real estate industry friends) after I had already spoken with a couple agents from her same office. Because her office approached me with the "team effort" including the Broker-in-charge, I didn't then interview Pat. When I later approached the Broker-in-charge about the all of my problems and suggested Pat the #1 agent in town give her opinion, he said she is so successful and busy that he doesn't have any control over her to even ask for a favor.

So Diane, what it boils down to is exactly what Deborah said,

so much I couldn't even narrow it down to a quote or two. Here are a few highlights.

"One of the greatest assets a Realtor brings to the table is objectivity and the ability to advise a seller based upon the collective views of many buyers."

"there is a discussion of general benefits and drawbacks presented for Ruth, as well as other buyers and sellers to consider."

"validates, reinforces, and boosts consumer confidence in their decisions"

"I suspect that even if Ruth hired a full service agent, she would remain hands on, and that she would still post questions and answers on Trulia. And, many of those would be the same questions she asks now."

Again, Diane, sorry you hit a hot button. And again, Deborah, thank you for the wonderful support.

By the way, I'll give additional details after my house sells.
3 votes
Ruthless, , 60558
Sat Sep 29, 2007
I think of this question along the same lines as the Dual Agency question I asked and how Paul answered it.

I know the pros and cons. I'm not giving details (aside from the time of year) because the goal is to look at a variety of situations and how the advice would differ. When I did have an experienced REALTOR she would simply state the pros and cons and say, it is your decision. This has become a more common trend because of the fear of liability. I'm on this forum asking for view points not necessarily solutions. As my profile here says, "I'm just trying to wake up the agents who get stuck in their standard responses."

Maybe I should change "FSBO" to "Devil's Advocate."
2 votes
Jay Lynn, , New York, NY
Sat Sep 29, 2007
yes take the contingency, but only upon the firm agreement that your property will continue to be marketed as active and show that way in MLS. Tell truth to all agent and buyers. if you put in MLS as pending, you will not reach any more buyers.
2 votes
Diane Glander, Agent, Spring Lake, NJ
Tue Oct 2, 2007
I just read the post you referred me to in this thread re: the problems with your agent. Any agent that gives you a $1 million range for a listing is downright stupid. That is not advice, that is someone who doesn't know his/her job!!! As I said, my job is that of an advisor, but along with that goes responsibility and having the knowledge and skills needed to make your transaction move along efficiently.
I didn't mean to hit your hot button. I can see how an inexperienced agent could feel intimidated by you because you are a very knowledgable consumer. There aren't too many of those out there. Part of the problem with the business is that (in NJ) they basically do all they can to push agents through the licensing course, spoonfeeding them the information where necessary. All one needs is a HS diploma to get a real estate license in as little as 2 weeks! There were people who were so dumb that they needed a calculator to figure 5% of $100,000! So, as we all know, there are bad agents out there, and then there are stupid agents out there!
As a rule of thumb, it is better to be represented by an agent, especially in a buyers market; however the consumers need to be sure they are getting an intelligent agent with experience. That should limit the number of honest mistakes.
It sounds like your experience was bad from the agent(s) you chose to the company they worked for. It's always a tragedy when someone has this kind of experience. It puts a bad cloud over the whole industry. I give you credit for not being a more negative person towards all agents with your posts on Trulia. I know you were a past agent, but isn't it ironic that some of the questions/answers you post are more informative, intelligent than those posted by some of the agents???
Thanks for responding to my post, I wouldn't want my intentions to be misunderstood.
Web Reference:  http://www.dianeglander.com
1 vote
Carrie Crowe…, Agent, Southaven, MS
Sat Sep 29, 2007
My advice would be similiar to the others. It would depend on the offer that it came with first and foremost. Is it a good offer? Then, it would depend on the home that is contingent. Is it listed? Is it in an area with a history of fast or slow turnover? After those questions have been answered favorably I would counter an acceptance with an addendum that lets you continue to keep the property active. In my experience, with this much inventory, unless a client wants in a particular area that does not have a lot of inventory, most agents won't pull contingencies. If this question is based on an offer, good luck!
1 vote
Ute Ferdig, Agent, Newcastle, CA
Sat Sep 29, 2007
Hi Ruth. I think I would look at how long the seller's property has already been on the market and of course whether the offering price is reasonable and whether the buyer's property is already in escrow. If the buyer's property is not already in escrow, I would want to know if it is at least priced competitively. When I submit a contingent offer, I try to send a CMA along with the offer showing that the property that the seller needs to sell is competitively priced. I just wrote up a contingent offer for a house and the property that needs to be sold is land. I did not send a CMA along because there were really no good comps available, but I told the listing agent for the house why I thought the land was priced correctly.

In my experience, contingent offers are usually more reasonable as far as offering price is concerned as the buyer wants to give the seller an incentive to accept the offer. If the offer is low and contingent, the seller would be better off waiting. The time of the year I think is also a valid consideration. In most markets, there is a noticeable slowing during the holiday season and accepting a contingent offer for a few months does not affect the seller nearly as much as during the prime real estate seasons.

I would also want to know what the MLS rule is for contingent offers. Some MLS rules require the property to show as pending with a 72-hour clause. Others allow the property to remain in active status with a remark added showing the 72-hour contingency clause being in effect. If you can continue to market the property as active, you have a better chance at getting other offers. If it has to be in pending, it's a lot less likely that agents will continue to show the property to prospective buyers. So, I guess, the answer is as so many times, IT DEPENDS.
Web Reference:  http://www.go2kw.com
1 vote
Paul Slaybau…, Agent, Scottsdale, AZ
Sat Sep 29, 2007
I almost always advise against. You still are left with a property that needs to be sold, only now you are relying on another party. You effectively lose control. What if they price it unrealistically, or are slow to reduce the price if it doesn't sell? What if it is difficult to show or not kept in perfect showing condition? You are also trusting that they have hired a better agent than you have (generally speaking, Ruth, as I know you are FSBO). What if this other agent, gulp, advises his/her clients to accept a contingent offer on that property? I have seen transactions that were literally stacked 5 deep. Every domino needed to fall perfectly into place for the last deal to close. The other problem is that you will lose showings when people learn there is a contract in place. Even if you do some type of first-right-of-refusal, buyers tend to steer clear when they know a property is not readily available to purchase. This goes double in a slow market. Too many unencumbered properties from which to choose. I would only consider such a scenario if I was permited to inspect the buyer's current property, determine if the list price is reasonable and come to the conclusion that it is a more saleable property than my listing. As for the holidays approaching, that only bolsters my opinion. There may be fewer buyers for you, but the same can be said for your potential buyer's property. I prefer to keep my fate in my own hands rather than relying on someone else's ability to sell a house. Is this just a hypothetical, Ruth, or do you have an offer in play?
1 vote
Molly Brunda…, Agent, Bend, OR
Tue Dec 16, 2008
Hi Ruthless,

I can speak for how a contingent offer might be handled in Oregon. As a seller, there are several different contingencies buyers might throw at you but one of the most common is an offer contingent upon the sale of their home.

If you as a seller receive a contingent offer, at the bare minimum, the buyer's house should be listed in the MLS. You should ask your agent to put together a CMA (comparative market analysis) for the potential buyer's house. Is their house priced aggressively? Are homes selling in their neighborhood? Are homes selling in their price range? Your agent should also request information about the number of showings the potential buyers have had and what kind of feedback they're getting. The last thing you want to do is accept the contingent offer if the buyer's house has no chance of selling.

If you decide to accept the contingent offer, make sure the offer gives a specific date for the sale of the buyer's home AND the closing date for the sale of your home. You might decide to give them 30 days to find a buyer, and another 30 days to close once they do. You can state that the closing of your home will occur 30 days after the close of theirs. If there hasn't been a lot of interest in your home during those first 30 days, you can give them an extension.

You'll also want to include a First Right of Refusal, or a release clause. This will allow you to continue to market your home for sale and accept another offer in a backup position. If another offer comes in, the first buyer then has 24-72 hours (depending on how you structured it) to decide whether or not to move forward with the purchase of your home. If they do not release the contingency, you can cancel the deal with them and accept the second offer. If they do release their contingency, you must move forward and sell your house to them. This is where accepting a contingent offer can make you kick yourself. Let's say the second offer is a higher price and they can close quickly. If the first buyer agrees to move forward with the purchase of your home even without having sold theirs, you must sell to that first buyer.

Make sure the buyer agrees to allow you to continue marketing your house for sale. I have heard of buyers requesting the seller withdraw the home from the MLS. This is not advisable. If the prospective buyer can't sell their house, you've essentially taken your home off the market during the contingency period and possibly missed other buyers.

It's a good idea to ask the buyer to release the other contingencies typically found in the contract (like the home inspection and loan contingencies) early on. Urge them to get the home inspection done right away and negotiate any needed repairs. There's nothing worse than waiting 3 months for the buyer's home to sell, having a home inspection done, and finding out that they buyer is not happy with the report and does not want to purchase your house after all. Get the home inspection done within the first couple of weeks so there are no surprises down the road. Even if the contingent buyer can't sell their home and purchase yours, you'll be ahead of the game with the next buyer because you'll have already completed the repairs.

One positive aspect of contingent offers is that the buyer usually writes a strong offer otherwise. They may offer more for your house than a buyer without a contingency because they know you're not going to be excited about the contingency. They will try to make it up to you by offering full price, or very close to it.

While a contingent offer is definitely not ideal, they can be structured to minimize the risks. Knowing that you can still market your home to other prospective buyers and accept offers can really motivate the buyer to get their home sold.
0 votes
Richard M. J…, , Sherman Oaks, CA
Fri Oct 26, 2007
Hi Ruth, if I'm understanding your question correct, the 72 hours is allowing the other party additional time to remove contingencies. Now, knowing that the holidays are approaching fast and some people will be busy or out of town, I would accept 72 hours if the other agent notifies you that the client will be busy or away and needs more time to get in touch. Plus you know that its not just the sellers and agents who are going to be busy too. Escrow, title, lender, mortgage guy, are all going to be busy too. So be understanding and let if fly during the holiday season.
0 votes
Ruthless, , 60558
Fri Oct 26, 2007
Deborah wins best answer for highlighting all the different questions that need to be asked.

Excellent answers, thank you,
0 votes
Diane Glander, Agent, Spring Lake, NJ
Mon Oct 1, 2007
You write: " When I did have an experienced REALTOR she would simply state the pros and cons and say, it is your decision." I think of my job as a Realtor as an advisor. I will give my clients pros and cons, market values, pricing advice, etc, however, the final decision every step of the way is the clients. I will give you the truth, even when it hurts, but leave the final decisions to you. For me, it's not a liability issue at all--what it boils down to is this: The transaction is your deal, not mine.
Web Reference:  http://www.dianeglander.com
0 votes
Keith Sorem, Agent, Glendale, CA
Sat Sep 29, 2007
I hesitate to answer because of your extensive "experience".
Selling one property and what goes with it does not compare to selling four, five, six, homes.
Your question is EXACTLY why having an experienced REALTOR is the best for a person selling their home.

1. We don't know the details of your situation.
2. We are required by law to take a Fiduciary responsibility. That is difficult to do from a distance.
3. Ruth, the market, overall, is trending which way?
How long will it trend that way?
So, if one has had NO offers, would you accept one with a contingency?
Let me ask you this: if you could, and still keep your options open, would you?

Of course you would. But I don't practice real estate in Illinois. So, talk with a REALTOR that can give you GOOD ADVICE.
Best of luck to you!
0 votes
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