You’re ready to sell your home, but you’re left with questions about your next steps. Where will I live? What if we don’t find another house to move into before settlement? What if I want to buy a house but I need to sell this one first? These are valid concerns. The good news is that contingency sales are here to help you when you find yourself in this situation.
The Basics of Contingency Sales
A contingency sale is a clause that can be included in your contract when buying or selling a home. If you put an offer in on another home, but you need to sell the home you currently live in, this clause helps protect you.
The contingency clause makes it so that your contract for buying the new home can only move forward if you sell the home that you’re currently living in. It can also be used if you’re looking to sell your current home and need to purchase a new home.
If you don’t find another house to purchase by a specified date or don’t sell your home by then, then the sale won’t move forward. However, if you’re able to find a buyer or another home by the date in your contract, then the sale moves forward.
“A good way to look at a contingency sale is to look at it as an if-then situation,” Diamond’s Mortgage Origination Manager Ben Huard said. “If I’m able to sell my current home, then I will buy yours.”
More Real Estate Contingencies
Contingency clauses can be used for more than selling or buying a home. They can also be used for home inspections, mortgages and appraisals.
If you want the house you’re buying to be inspected before the sale is official, you can work that into your contract. This way if anything is found in the inspection that is cause for concern or would be a lot to fix, you can negotiate the price down or have the seller fix the issue. In the case that the seller isn’t willing or able to make the requested repairs, the buyer may also be able to break the contract.
If you put an offer in on a home with a pre-approval letter, a mortgage contingency protects you if for some reason the loan doesn’t go through. Getting pre-approved isn’t a guarantee that you have the loan. Your loan still needs to go through underwriting before everything is set in stone.
If you submit an offer and it ends up being more than what the house is appraised for, it can negatively impact your loan financing. A property appraisal contingency lets you back out of the contract if the appraisal comes in lower than expected.
Contingencies Protect You
All of these contingencies are meant to protect the buyer and seller. You wouldn’t want to find yourself in a situation where the house comes with more baggage, and you want a safety net so that as you’re selling your current home, you know there’s another one waiting for you.
While contingencies protect you, the use of them can all depend on the housing market. If you’re buying a home in a seller’s market, a seller can pick and choose. If they see that you have contingencies listed but the next offer has no contingencies, you could lose the sale. Contingencies are more likely to go through in a buyer’s market.
These different contingency options can help you negotiate the sale of your home and buying your next one. You should speak with your real estate agent to see how contingencies can help you in these situations. Peace of mind when purchasing or selling a home will help make the process that much better.
If you have more questions about contingencies or buying a home, contact a member of Diamond’s Mortgage Team.