Should You Accept a Contingent Offer?

North Redondo Beach drone shot
I was alternately considering calling this post "Buyer and Seller Contingencies" but more specifically wanted to answer the question of whether, in this unprecedented Seller's Market, a seller should consider a contingent offer. I'm not referring to the usual contingencies of appraisal, inspection, loan, etc. but more specifically to the sale of the Buyer's current property (in order to buy your houses).

The answer, as in most things real estate related, is "it depends".

I, or rather my seller, recently accepted a contingent offer on a very hot property. We did so primarily because it made very good business sense. First, the buyer was paying substantially over the asking price. Second, the contingency period for the sale was no longer than the normal contingency period for the loan would have been.

In fact, not only did we accept the contingent offer, the buyer of the contingent property was also selling a property so they were contingent. In other words, for the sale of my listing to go through, the buyer had to sell their house and their buyer was contingent also. 

As it turned out, everything went smoothly and we closed on time (more or less). Well about a day late which isn't out of the ordinary these days.
Here's what I did.

I was able to reach out to the agent to the agent for the sale of the first down leg and the lender for that buyer. I got a very good feel for both. I then laid out all the contingency dates for all three escrows and when I realized that everyone else was ahead of us in their timelines determined that even if the downstream actors did not perform we would not be at a disadvantage in our contingency periods.

A few things to look watch out for.

First, many buyer's agents mistakenly feel that if their buyer does not need the proceeds from the sale, it is not a contingent offer. Only true if the buyer qualifies for both properties. If the buyer needs to get the payment on the current home off their credit report in order to qualify for the up-leg, then it is a contingent offer even if they do not need the proceeds.

Where in the sale are the contingent buyers? In other words, have their buyers removed all contingencies or at least the inspection contingency. If all contingencies are removed, it is a fairly low risk. If only the inspection is removed, medium risk. If the buyers property is not in escrow, pass because that is a recipe for disaster.

As prices rise and more home owners have greater equity, it is very possible that we see more "move up" buyers and contingent offers once again become part of the business.