offer - contingent on their house sale

t-mac-moJanuary 15, 2008

Okay, I've never sold a house before. Our agent called and there's an offer, but it's contingent on the buyers selling their house. (I don't really know any other details, because the agent wants to meet in person to discuss, won't give us anything else on the phone.) She called at 9:30 at night to tell us, so we're meeting her tomorrow evening to review the offer and make our counter (which she says we should do).

How does this work with a contingency like this? I'm not crazy about sitting around for weeks/months waiting for someone else's house to sell. It's stressful enough waiting for our own to sell. What do we look for, ask for, what are our options, etc.?

On the bright side, the house went on the market officially the day after Christmas, with the holidays we didn't have any activity until after new years. We've had only two showings, and now an offer, so we're really encouraged by that.

Any advice or explanations of how this works is appreciated.


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It is definitely a rather sticky situation in today's housing market. At least you have an offer even though it is not ideal. There will be plenty of comments on what you should do so I will only give my own (very experienced) guidance.

Make sure they are prequalified with a loan before you do anything. If they are not pre-qualified then it doesn't matter if their house was to sell tomorrow they would have to go thru that whole process and there are no guarantees while you take your home off the market.

    Bookmark   January 16, 2008 at 12:15AM
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A letter from a bank or mortgage broker stating that an applicant is prequalified is not worth the paper it is printed on. Even a pre-approval letter is almost as worthless because the entity that "pre-approved" the buyer can still refuse to fund the mortgage.

That said, the number one thing that you want to ensure that you have in your contract is a "kickout" clause that allows you to continue to market your house to other potential buyers while your first buyer attempts to sell his or her house. The way this works is that you can negotiate and sign a second contract with a different buyer subject to the first contract. Your original buyer then has 72 hours (or however many hours/days you put in the kickout clause)to remove the house sale contingency. If he is unwilling or unable to do so, then the first contract is void and you can sell the house to your second buyer.

Having a kcikout clause in your contract alleviates the necessity of having your house off the market while your first buyer attempts to sell his. Your agent can continue to market the house, hold open houses, etc. Be forewarned however, that some agents working with buyers will not bother to show your house since it will indicate in the MLS that it is under contract with a kickout clause. They may choose instead to just show their clients houses that have no contingent contracts at all, feeling that they may be wasting their time to show yours.

    Bookmark   January 16, 2008 at 5:17AM
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Is their house on the market? If not, when? If you or your agent can, it may be good to visit their house to see how "marketable" the house is. If it's a good-looking house in a good location, accept with the kickout clause.

    Bookmark   January 16, 2008 at 7:10AM
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Thanks, that's helpful. We've been told that the buyer is pre-approved, but I do know that can be somewhat meaningless.

I did a little research after I posted this, and found out about kickout clauses. I did wonder whether agents would bother showing or whether buyers would bother offering, though. Bethesda, sounds like that's a valid concern?

Thanks for your thoughts.

    Bookmark   January 16, 2008 at 7:15AM
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agree with Bethesda that pre-approval/qualified is worthless.Having a kickout clause is a must, but you need to determine your market(buyer?seller?neutral?), because you had an offer after being on the market for a relatively short time.Is it possible that you might get other offers without accepting this contingent offer? Only uou can answer this...I am not a fan of accepting a contingent offer, though the kickout clause gives you some options.Think about it from a buyers standpoint, what do they have to lose? Can't sell their house, they then can't buy yours, but your's has been off market(or on with the dreaded "under contract,BUT" statement)..
Good luck with your decision

    Bookmark   January 16, 2008 at 7:45AM
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Regarding the kick out clause, and whether buyers would bother offering-
If they don't have a house to sell, they will offer. When we sold our house, we accepted a buyer who had a house to sell, but we used the kickout clause. Our realtor continued to market and show our house. We had just as many showings while under contract as before. We got another offer three weeks later from buyers with cash. They offered us full price, figuring rightly that we'd rather have the cash than possibly wait several months.

When we were buying a house, we made an offer contingent on selling our house. The realtor there also continued to market the house, and got another offer. I was scared of having two mortgages, so we passed. It worked out for the seller anyway, the second offer was much higher than we had contracted for.

    Bookmark   January 16, 2008 at 8:17AM
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I have some questions about accepting kickout clauses. First, I suppose it cuts out any other offers from buyers who would also need a home selling contingency? After all why swap one buyer for another with the same contingency. But suppose a second buyer comes along with a house that is actually under contract but still needs the contingency in case their house doesn't close (not that that ever happens).

What if the second offer with house sale contingency is offering more money? Never mind the wisdom of doing this, is it even legal to drop one contract with a house sale contingency for a second contract with a house sale contingency.

I think it is good advice to check out the buyers house to see how motivated and realistic they are as sellers. Is their offer a full price offer?

    Bookmark   January 16, 2008 at 8:22AM
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I'd check out the buyer's house before I accepted a contingent offer. If it is on the market, is it presentable? Reasonably priced? Being marketed aggressively? You will have to do some crystal ball gazing, but if they are currently on the market, reasonably priced, aggressively marketed and the house looks good, then accepting a contingent offer may not be horrible. If they aren't on the market yet, are over-priced, have been on the market 6+ months, I'd pass. While a kick-out clause is wonderful, find out if houses that are technically under contract are still actively listed/viewed in your area. If they are not, even with a kick-out clause I would pass.

How is your general market? Buyer, seller or neutral? Is your house in a price range that would require someone selling their house first before being able to afford your house? Or, would a first time buyer be able to afford your house?

    Bookmark   January 16, 2008 at 9:26AM
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I remember as a young inexperienced buyer many moons ago looking at a home with a realtor. I loved the home and the agent informed me that it had a contract with a kick out clause. I was so young and naive, and didn't want to "steal" the house from someone else that had put in an offer so I didn't put in an offer on that house. But since that time I have had realtors tell me a house was under contract with a kick out clause and often the realtors themselves were reluctant to show the home for whatever reasons. Personally, I'd pass if it was contingent upon sale of their home. I've even heard of some sellers accepting contingencies where the buyer has already sold their home, and the contract is just contingent upon the buyer closing on their home and those have fallen through.

    Bookmark   January 16, 2008 at 9:36AM
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IF you decide to go with the contingency, maybe have a time limit if 3 months where if they don't have a contract on their home by then, you can choose to nullify the contract (or at least make them remove contingency and set date to buy your place.)

Else you could be stuck for a year or more waiting for their place to sell, which occurs these days.

I would maybe want to make sure their place is priced correctly according to comps. Maybe your agent can work this out for you. You don't want their home overpriced by 20%, as this will waste time.

    Bookmark   January 16, 2008 at 9:42AM
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It's also important to know how your local MLS handles contingent sales. Do they show up on the MLS as "pending" or do they stay "active"? If they are required to show pending I would be hesitant to accept the offer so soon after listing, as agents are usually only searching the "active" properties to show their clients.

    Bookmark   January 16, 2008 at 10:59AM
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In December we had a contingent come in offer after our THIRD deal fell thru (and had been on the market for over a year). Our realtor was hesitant and offered to do a market analysis on the house they had just put on the market. In his opinion there was nothing spectacular about it and in an area just as slow as ours. He said we could accept the offer but traffic would likely suffer. We respectfully declined and said please come back when you sell, but we just cannot take the risk of no traffic when three times we went under contract and didn't close. (One of our offers was contingent on the successful closing of their home. The closed and then decided to back out anyway and we got the earnest money. Not really much of a compensation though.) Happy ending - two days later we got another offer, full price and they wanted to close in three weeks! A Christmas miracle for us.

Good Luck!

    Bookmark   January 16, 2008 at 12:10PM
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In this market I would not take a contingent offer unless the buyers house is under a firm contract.
I'd very politely ask them to resubmit an offer when their house is under contract.
In the counter, I would also mention that if they are willing to do a bridge loan, you would seriously consider their offer.

    Bookmark   January 16, 2008 at 12:40PM
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We bought our current house this way. We made the offer in March 2007 before our old house had gone on the market. The sellers accepted as their house had been on the market for 3 months at that point. They wrote in a "72-hour kickout clause" stating that they accepted our offer but if they got a better offer they would give us 72 hours to remove our contingency or they'd cancel our contract and proceed with the new offer. They gave us 2 months to sell our house and another 1 month extension after that. They were prepared to give us even more time but we applied for a bridge loan and had it for about 2 weeks when we got an offer on our old house. I know the sellers' realtor continued to show the house after our offer and she held a couple open houses. She also attached "72-hour clause" to the listing. I have no idea if the sellers "lost" offers because of this, but with the way the market is in our area, we all feel lucky to have sold our houses. There are houses in our area that are going through their second winter on the market. I'm glad we're not one of them!

    Bookmark   January 16, 2008 at 3:01PM
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ditto xamsm.
Kathy G in MI

    Bookmark   January 16, 2008 at 8:55PM
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We decided to decline the offer. The house they are trying to sell is like literally dozens and dozens of others for sale in that area of the city, a 100 year old frame house, 2 bed, 1 bath - and quite overpriced in our and our realtor's opinion. The nearest comp to theirs sold after 14 months on the market for quite a bit less than our prospective buyers have theirs listed for. We just didn't see the point, even with a kick-out, because in our view their situation is not very hopeful. It looks like a cute house from the pictures, but their zip code alone has nearly 100 similar properties for sale. Yikes.

    Bookmark   January 17, 2008 at 8:31PM
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Instead of declining, why didn't you counter-offer and remove their home sale contingency ? Possibly they could buy your place without a contingency, and just asked because that was a preference (but not a requirement).

    Bookmark   January 18, 2008 at 8:48PM
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Our realtor did talk to their realtor about doing that, and they did not want to or could not, I don't know which.

    Bookmark   January 18, 2008 at 9:45PM
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I'd have been afraid of the contingency, as well.
Our next-door neighbors had a "house of cards" scenario where they needed to sell their house to buy their new house, and their buyers needed to sell their house to buy my neighbor's house, and so on.
The deal two buyers down the chain fell through, causing FOUR (4) contracts (that we knew of) to void out.

    Bookmark   January 21, 2008 at 2:00PM
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I'm curious after reading this. Just how does the timing of buying and selling work? You sell your home and go looking for another home - and ...?? How do you work out staying in your home until you have another home? Is it that the new owners can't move in until you've bought your new home?

    Bookmark   January 21, 2008 at 2:14PM
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C9pilot, I was just thinking about that possible scenario the other day. What a mess that would be.

Ladyinmue, I'm new to this process, but we went into this prepared to move twice, if our house sells quickly (please oh please) -- renting until the new house is ready. We are building, and anticipate being finished end of June or so. For us, the relief of having our current house sold and settled far outweighs the hassle of double moves. I suppose you could specify a close date several months down the road, but it seems like that might limit the pool of potential buyers - which we can't afford to do in this market.

    Bookmark   January 21, 2008 at 11:21PM
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ladynimue -- to answer your question, whatever the buyer and seller agree to in the contract as far as possession is what will happen. You'll read a lot on these boards from buyers that will never allow a seller to stay past closing. In some areas of the country allowing the seller to stay a prescribed time after closing is the norm. The details can be worked out to the satisfaction of the buyer and the seller. As t-mac-mo indicates if you want to stay past closing you do limit the pool of potential buyers that will allow that, but there certainly are some that will.

As a buyer if the seller requests to stay after closing and it's agreeable with you, make sure you get funds to cover principal, interest, taxes and insurance for the days they'll be occupying the residence past closing as well as a substantial amount of money put in escrow to cover any damage the sellers do while living in the home past closing, or any damage done at move out. You'll also have two walk throughs of the property, one right before closing and one at the time the sellers move out. To help protect yourself against the sellers not moving out on time, have a clause in the contract specifiying that if the sellers don't move out on the agreed upon date that their costs will triple, etc. or escalate and be deducted from the money held in escrow. If the sellers don't want to put a large sum of money in escrow, then don't agree to let them stay past closing.

I've heard many stories of buyers that wanted possession at closing and then closing was delayed and/or the buyer didn't show up at closing etc. At that point the seller has often moved out or incurred additional expenses. As a seller you should protect yourself from this happening. If the buyers want possession at closing, make sure they've put down enough earnest money to make it difficult for them to walk away from the deal.

    Bookmark   January 22, 2008 at 9:31AM
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Thank you both for the replies. Our last move we rented because it took a while for our home to sell. Once it sold we bought another house quickly and asked to move in by the end of the month because I was 8mo pregnant. I guess that is the norm here - we closed and at that time set a date for occupancy.

Now we are considering a cross country move and I just don't know how it will all work out. We will have no problem this time in selling our home very quickly. But isn't renting an apartment for a short time difficult? Usually there is a lease for 6 or 12 months. I guess I will ask more questions as we get further into the process.

Thanks again for the replies. I learned a lot and I'll have to find out what the norm is for the Denver area.

    Bookmark   January 22, 2008 at 12:41PM
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lady -- we handled several cross country moves. One of them was from Michigan to the Denver area, we were able to stay in our Michigan home for 30 days past closing, and were able to have possession at closing in Denver because the house we were buying was vacant.

When we moved from Denver to San Fran,our home sold a lot quicker then expected. We wanted to stay in the home til the end of the school year for the kiddies. We were able to rent back our Denver home for two months after closing and were able to swing possession at closing for our San Fran house because it was vacant at the time.

There are corporate apartments available for short term, although they definitely are costlier then signing a 6 month lease on an apartment.

Good luck.

    Bookmark   January 22, 2008 at 12:52PM
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