The Emergence of Contingency Sales from a Top Realtor’s Perspective

What is a Contingency Sale? And Why are They Becoming More Common?

With the current real estate shift from a sellers’ market to a buyers’ market, we are beginning to see a lot more contingency sale offers. A recent survey by Redfin noted that there was a 7.1% increase on the number of contingency sales offers from one year ago. This will cause escrow periods and the days a home is on the market to increase.

There are many complexities to properly do contingency sales, so it is important your agent is experienced and that they have done at least 50 of them.

Now that buyers have a more leverage, they are better positioned to ask a seller for a contingency sale. In the past when the market was a clear seller’s market, a buyer would just take the chance that they could get a bridge loan or carry two mortgages, while they were trying to sell their existing home. Now those same buyers are not as willing to take that chance.

It is not uncommon to have a couple of contingency sales linked together. For example, if you are selling a house and your buyer needs to sell their own home and the buyer of your buyer’s home need to sell their home and on and on. It can get a little complex as if a buyer a couple of levels down the chain cancels escrow, it can have a domino effect all the way up the chain.

There are three major clauses in the contingency sale form. The first is the length of time for the contingency sale. This is usually tied to the escrow period that is in the purchase contract for the seller’s home, around 60 or 90 days depending on if the buyer’s home is currently on the market.

The second main contingency is how many days the buyer has to get their home they are selling in escrow. The default in the contract is 17 days but this also depends if the buyer’s home is on the market. If it is not yet on the market, an agent may put 30 to 45 days. If the buyer is not able to get their home in escrow by the specific time period, the seller is able to give a notice for the buyer to perform to remove that contingency. Also, if the buyer does get their home in escrow and then their buyer cancels that does give the seller the option of canceling escrow as well.

The third major clause of the contingency sale form is the delayed right to notify for backup offers. What this means is if you are in escrow with a contingency sale buyer, the seller still has the right to take back up offers. Once they accept a backup offer, they can then force the buyer to remove that sale of their home contingency.

The buyer can request that seller has a 17-day delayed right to notify the buyer that they have accepted a backup offer. Another more aggressive approach is that the buyer asks the seller to not be able to notify the buyer if they get a backup offer for the entire term of the agreement, which is rarely used for obvious reasons.

Make sure you hire an agent who is experienced in doing contingency sales.