Contingent Offer Multiple Choice

[Editor’s Note:  Nothing in this post or on this blog should be construed as offering legal counsel.  If you require legal advice, please consult an attorney.]

Test your knowledge of the Summer, 2015 housing market and field this question:

Contingent offers — when a Buyer buys contingent on being able to sell their current home — are back in vogue.  Why?

A. A stronger, more active housing market is reassuring Sellers that the Contingent Buyer will be able to perform within the usual 60-90 day time period (in “Realtor-speak”, the Buyer can sell their current property, called “the backup home”).
B. Minnesota’s standard Contingency language now makes it easier for Sellers to get out of the deal (Note:  Once upon a time, Sellers could find themselves bound to the Contingent Buyer — see graphic, above.  Now, they can “call” (cancel) the Contingency for any reason, provided they give the Buyer adequate notice).
C. Buyer psychology:  Sellers know that a Contingent sale can fuel other Buyers’ ardor (works in dating, too).
D. Contingent Buyers typically compensate Sellers for the contingency with a higher price.

Answer:  all of the above.

The Case for Plan B

Notwithstanding their renewed popularity, my standard advice to prospective Buyers contemplating buying Contingent is to also investigate getting a home equity line of credit (“HELOC”) on their existing home, so that they can buy non-contingent.*

The Buyer typically taps the HELOC for a downpayment on the new home, then pays off the HELOC when their current home sells.

My logic?

The nominal cost of the HELOC is likely less than the premium the Buyer will have to pay to entice a Seller to accept a Contingent Offer — and less than the discount they may have to accept in order to sell their current home before their Contingency expires.

A word of caution, though, to Buyers contemplating such a strategy:  they need to secure the HELOC before putting their current home on the market.

The other way around doesn’t fly with lenders.

*Of course, to do that, the Buyer has to have equity in their current home, and financially qualify to carry two mortgages temporarily.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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