Contingent vs. Non-Contingent Offers
“We may be small — but we’re slow.”
–Cal Tech football team slogan
To be sure, carrying one mortgage today — let alone two — can be a big financial challenge, however temporarily.
And it’s certainly less risky to sell your current home, before buying your next one.
However . . . for those who are able to swing it, my advice is to buy first, and sell second — vs. making an offer that’s contingent on selling your current home (what Realtors call “the backup” property).
Goodbye, Discount!
That advice is based on two considerations:
One. Contingent Buyers typically need to offer more to compensate for the contingency.
Think about it: if you were the Seller, and the Buyer asked you to wait 60 (or 90) days to find out if you had a deal, and the odds of the deal falling through were as high as 50-50, would you accept the same price as you would from a Buyer who looked like a sure thing?
Probably not.
So, the typical way Contingent Buyers make their offers more palatable is by beefing up their offering price.
Double Whammy
Which leads to reason #2:
As the Buyer’s contingency gets close to expiring, their leverage negotiating with their Buyer can disappear.
While a good listing agent will never divulge a Seller’s motivation, the fact is, a Seller who’s about to lose their future home unless they can sell their current one is more motivated.
Sometimes, somebody screws up and lets the cat out of the bag; other times, it’s simply obvious from the Seller’s conduct — typically, the size and pace of their price reductions.
Either way, the net result is a Seller who’s telegraphing to prospective Buyers that they need to do a deal, fast — any deal.
Bottom line: any savings Contingent Buyers realize not doubling up on two mortgages is more than likely offset by their lessened negotiating leverage, as both Buyers and Sellers.
Other Contingent Buyer Risks
Of course, some Sellers simply won’t entertain a Contingent Offer . . . which makes the whole issue moot.
It’s also the case that a Seller can call the Buyer’s Contingency at any time, for any reason — and isn’t obligated to sell to the Contingent Buyer even if the latter subsequently makes their offer non-Contingent.
That fact leads to lots of Contingent Buyers getting bumped by stronger offers.
See also, “Daisy Chains, Dominoes, & Contingent Offers“; “Contingent Offers: Getting (Very) Comfortable With the ‘Back-Up Home“; and “Lake Wobegon and Contingent Offers.”
