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Real Estate Enthusiasts

In a seller’s market, should you make contingent offers?

The real estate market is hot right now, and bidding wars are the norm in many parts of the country. For buyers, that means more competition — as well as less leverage in negotiations. It’s just one of the many reasons to think long and hard about making a contingent offer.

The truth is, most sellers can have their pick of buyers right now, and if your offer isn’t exactly what they want, they will choose another buyer. Are you considering adding contingencies to an offer you’re submitting? Here’s what to think about:

Contingent offers and how they affect your deal

A contingent offer means that you plan to buy the home — but only if certain conditions are met first. 

Some of these conditions (contingencies) allow you to:

  • Get a home inspection and be satisfied with the results — or negotiate repairs or a lower sales price to make up for any findings
  • Ensure your home appraises for your full offer (your lender will only let you borrow this much)
  • Sell your current home before going through with the deal
  • Get approved for a mortgage loan in the full amount needed

These contingencies are all designed to protect you as a borrower — to make sure you’re getting a safe and habitable property, that you have the funds to pay for it, and that you’re not stuck paying two mortgage payments at once.

But they’re also an extra hassle for sellers. They mean a longer sales process, potential repair costs, and maybe even a lost deal altogether. For these reasons, you’ll want to be careful about making a contingent offer in today’s red-hot market — not to mention choosy about which contingencies you choose. 

Sellers can have contingencies, too

Sellers can include contingencies, too. They might ask to rent back their home for a certain amount of time, hold off the deal until they find a new home, or ask you to assume a solar panel lease or loan, if there’s one in place.

They might also include what’s called a “kick-out” clause. This allows them to keep marketing their home even after accepting your offer. If they get a better deal or an offer that doesn’t hinge on contingencies, they can back out and go with the new buyer instead of you.

If you’re facing a deal with contingencies, always talk to your agent about what it means for your home purchase, as well as your budget. If one of those contingencies isn’t met, it could mean losing out on the deal altogether. 

The bottom line

Contingencies are complicated. Making a contingent offer can protect your interests, but hurt your chances as a buyer. Accepting a seller’s contingencies? That can help your case, but put the deal at risk. Make sure to talk to your agent before agreeing to any contingent sale, and consider your options carefully before moving forward.

3d rendering of a row of luxury townhouses along a street

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