A while back, I wrote an article entitled, “Putting the Cart before the Horse: Making a Contingent Offer.” It was written specifically to advise Buyers on the pro’s & cons of writing a contingent offer. This time, I thought I would offer up some helpful counsel for Sellers on how to respond to contingent offers.
Looking at Webster’s definition of the word, ‘Contingent,’ I’m wondering which one is most accurate/applicable?
1 : likely but not certain to happen : POSSIBLE
2 : not logically necessary; especially : EMPIRICAL
3 a : happening by chance or unforeseen causes b : subject to chance or unseen effects : UNPREDICTABLE c : intended for use in circumstances not completely foreseen
4 : dependent on or conditioned by something else; contingent on fulfillment of certain conditions
5 : not necessitated : determined by free choice
While I know that #4 is obviously the correct answer, as being relevant to real estate, some of the other definitions could certainly apply as well. But just so we’re all on the same page here, a ‘Contingent‘ offer is when a prospective Buyer submits a contract offer on your home, but their offer is ‘contingent‘ or ‘dependent/conditional‘ upon the sale of their current residence.
In a slowing market, such as we’re experiencing here now in Kitsap County WA, contingent offers become more commonplace. Conversely, in faster, brisk Seller’s markets, you rarely see them being employed because they are quickly bumped by other competing offers.
As the market cools, and the inventory of available homes increase, Sellers are more willing and motivated to consider ‘contingent‘ offers.
As a Seller, what are the risks associated with accepting a ‘contingent‘ offer?
Well, first and foremost, here in our market area, when you accept a contingent offer, the status of your property changes in the NWMLS (Northwest Multiple Listing Service). Your home goes from being an ‘ACTIVE‘ listing to being a ‘CONTINGENT‘ listing. As such, your home is shuffled down towards the bottom of any property searches being performed by Agents accessing the NWMLS. This will effectively reduce the amount of valued exposure your home will receive.
When submitting a Contingent Offer using NWMLS Form 22B, the default contingency period is 45 days. This is the timeframe your Buyer has to get their property under contract with a viable Buyer. If another interested Buyer for your home comes along during this period, they can ‘bump‘ the first Buyer. By default, Buyer #1 has 5 days to either remove their contingency or back out of the contract, allowing Buyer #2 to proceed forward with their offer. In some instances, Sellers may tighten up or reduce these default timeframes, just to help ensure that their property isn’t tied up for an excessive period of time. Once you have reached the end of the contingency period, you can either negotiate an extension with the Buyer, or simply allow the contract to expire, releasing both parties from their obligations.
Some questions you’ll obviously want to have answered prior to accepting a contingent offer:
- Where is the Buyer’s home located? What is the market like there?
- Is the Buyer’s Home currently up for sale? If so, how long has it been on the market?
- Is it listed by a licensed real estate professional? Is it priced aggressively, according to market value?
One word of caution here: With all of the recent challenges being faced by the mortgage industry, make sure that your Listing Agent stays in constant contact with your Buyer’s Agent during the contingency period. Loan programs can change overnight. You’ll want to ensure that once their property is under contract, that they can still qualify for the purchase of your home.
A Contingent Offer is better than NO offers, especially when there are so many other competing properties for sale on the market. Just make sure that you’re making intelligent and informed decisions, and that the potential benefits outweigh the risks.