Is it an understatement to say that buying a house can be a complicated process? And that’s long before buyers even start thinking about steps like making a contingent offer.
From the moment you make the decision to find a new home, you’re navigating a juggling act of strategy, timing, and luck. Choosing a qualified agent and searching for the perfect home in terms of ideal size, location, price, and condition can already feel like a journey, but making an offer on a property is when the challenge really begins.
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Making a competitive offer on your dream home is as important as ever, even when the nation is slowly shifting toward a buyer’s market. Buyers still need to come prepared with enticing offers and the capacity to quickly follow through, and nothing can sideline an otherwise stable deal like tricky contingencies.
We’ll review what a contingent offer is and run through a common contingency scenario with the help of Marc Lagrois, a real estate agent based in Rochester Hills, Michigan. We’ll explore what buyers can do to help strengthen a contingent offer and secure a spot at the closing table.
What is a contingent offer?
As the term implies, a contingent offer proposes a deal that can only be brought to fruition if certain conditions are met. Because the stakes are high when it comes to property transactions, contingencies are written into the purchase agreement, and in most cases, action must be taken toward satisfying those contingencies within a certain time frame.
Contingencies can range from the relatively minor or otherwise workable — like requesting a $3,000 allowance to fix a plumbing issue that was revealed during inspection — to more serious stipulations, such as a buyer needing to sell their existing house before closing on the next.
Negotiable contingencies
As you’d likely imagine, some contingencies are negotiable, while others simply are not.
Home inspections
A home inspection contingency lets the buyer back out of the deal or renegotiate if substantial issues come up during the home inspection.
While widely considered a best-practice move when purchasing a house, home inspections have some wiggle room. Cash buyers occasionally forego the inspection process to save time, and buyers coming in with other contingencies may either waive their right to a home inspection or agree in advance to cap their potential request for repairs or allowances as a good-faith gesture toward the seller.
Home appraisals
When you use a mortgage to buy a home, your lender will need to order an independent appraisal to evaluate what it’s worth. That’s why financed offers come with appraisal contingencies — the loan can’t clear until the home has been appraised and the lender knows they’re not lending you too much for the home. But if the appraisal comes in low (that is, the home is worth less than your offer amount), it can put your deal with the seller at risk.
It’s difficult to fully circumvent the appraisal process when financing is involved, but these numbers aren’t necessarily a dead end.
“I’ve seen buyers guarantee or partially guarantee the appraisal,” says Lagrois.
“If they’re offering a really high price, maybe even a little over market value, they realize they’re going to have to do something to protect the seller from the possibility that the appraisal will come in low.”
In these cases, buyers make up the difference between the purchase price and the appraisal with cash.
Buyer financing
Unless you’re paying cash for a house, your best course of action is to include a pre-approval letter from a mortgage lender with your offer. This indicates to the seller that you’ve been qualified to secure funding, and proves that you’re serious about buying since you’ve already gone to the trouble of talking with a bank.
That being said, pre-approvals aren’t yet a guarantee of funds, and they usually carry an expiration date. Plus, you’ll want to include a financing contingency in your purchase contract which states that the home loan has to clear before the deal can close.
So, can a financing contingency be negotiable? If you’re obtaining traditional financing, waiving the financing contingency can put your earnest money deposit at risk. One way around a financing contingency could be to apply for a bridge loan or use a service like HomeLight’s Buy Before You Sell, which allows you to make a non-contingent offer on your new home by unlocking the equity in your current home.
Sales contingency
Needing to sell your house before you can close on your new home is a very common situation, but for the seller of your intended next property, this is a risky scenario. If something jeopardizes your sale, then their deal with you is now also at risk.
Adding a sales contingency to an offer essentially asks the seller to enter into a waiting game with you, and if they happen to also be purchasing a new home while in the process of selling one to you, it’s not hard to see how another offer without a sales contingency may look more appealing.
We’ll dig more into how to navigate this contingency shortly.
Settlement contingency
A settlement contingency is similar to a sales contingency, but in this case, you’ve already found a buyer for your house and you’re just waiting to close. Writing this contingency into your offer usually involves specifying a certain date by which your sale will be settled, whereupon you can move forward with your next purchase.
Should the sale of your current house fall through or even just get delayed, the seller of your would-have-been home can put their property back on the market if you can’t renegotiate a closing date.
Non-negotiable contingencies
Non-negotiable contingencies, on the other hand, can derail or significantly delay a sale.
Title and lien contingencies
Review the detailed settlement document provided by the closing attorney, and you’ll see a line item for a property title search. This element of research is done to ensure that the person selling a house is indeed the legal owner of the property with full rights to sell.
If a title search reveals any claims to or liens against the property, the transaction will be delayed until it can be resolved. Claims most often arise from family disputes or divorce proceedings, while property liens can be tied to debts owed to contractors, unpaid taxes, bankruptcy, and more.
Zoning and land use contingencies
If you’re buying a property that is currently used for residential purposes and you plan to continue using it as a residence, you probably won’t be troubled by zoning contingencies, but it’s worth being aware that changing the use of a property often requires proper approval and permitting — both of which go beyond what a buyer and seller can agree on amongst themselves.
Short sale or bank approval contingencies
If you’re purchasing a home that is considered distressed or is otherwise bank-owned, you’ll find far less room to negotiate the fine points than if you were working directly with a private seller.
Court approval contingencies
Like claims against property titles, contingencies requiring the approval of a court to move forward occur most frequently in cases of divorce settlements and estate sales.
Sweetening the deal when a contingent offer is inevitable
Now, let’s hone in on the common contingency of needing to sell your current home in order to buy your next property. When you’ve found the home of your dreams in a competitive market, how can you make your offer as enticing as possible to a seller who is likely fielding offers left and right?
“If you’re writing an offer that is going to be contingent on the sale of your home, you have to show that you’re serious about getting that house sold,” says Lagrois. “You have to demonstrate that it’s priced to sell and that it’s going to be marketed effectively.”
This scenario is when it’s especially helpful to have a seasoned real estate agent in your corner. Since the agent helping you buy your next home is also likely to be the agent selling your current property, it’s important to work with someone who has the experience to anticipate needs and field concerns on both sides.
“A smart agent is going to be able to demonstrate that their buyer is very serious,” Lagrois says of the offer-writing process. “An inexperienced agent is going to have a tough time navigating through that kind of deal.”
It’s time to get creative
So you’ve found a great agent, they’ve helped you price your home appropriately, and together you’ve created a solid, provable marketing plan; now what?
As the old saying goes, money talks. Coming in with an offer that is at or over asking price is one way to grab the seller’s attention. From there, consider using a little creativity to sweeten the deal.
“I’ve seen buyers doing things like offering free occupancy after closing to make their offer more attractive,” notes Lagrois.
While most home sales require the seller to have vacated the property by closing day, offering extended occupancy allows a buffer of additional time before the seller has to be out. This can work to the advantage of both parties by alleviating time pressure to pack up and move, so consider keeping this handy tool in your negotiation arsenal.
Another uncommon but potentially helpful option is to offer to write a kick-out clause into your contract for the seller. This means that the seller retains the option to accept a better offer if one comes in while their transaction with you is still in progress.
If this sounds risky for you, that’s because it can be! But if you’ve fallen head-over-heels for a particular home to the point where you’re willing to offer a kick-out clause, build in protection for yourself and be sure that the verbiage includes a first right of refusal for you as the buyer. Meaning, if the seller wants to accept another offer, you’ll have up to 72 hours to remove some contingencies from your contract so that it’s more attractive to the seller and you can still move forward with the purchase.
Still feeling stuck? Let HomeLight Buy Before You Sell lend a hand
For ultimate buying power, consider using HomeLight’s Buy Before You Sell to purchase your next home. As noted above, sellers prefer offers with few or no contingencies. With HomeLight Buy Before You Sell, we give you a back-up offer on your home, allowing you to make an offer without a sales contingency, which makes your offer more attractive to sellers.
Here’s what you can expect to happen when you use Buy Before You Sell:
- Unlock your equity: Tell us a little bit about your situation, and we’ll help you unlock a portion of your equity as quickly as a few hours later. We’ll tell you how much you can access based on factors like your home value, outstanding loans, and your financials.
- Use your funds: You can put that equity toward the down payment on your next home, moving expenses, closing expenses, or property repairs.
- Make a strong offer: Now, you’re ready to go out and make a non-contingent offer on your dream home — in competitive markets, this can be a game changer.
- Sell your existing home: We’ll work with a top HomeLight agent to list your vacant home on the market to attract the strongest offer possible. Having already moved out, you won’t have to worry about selling a house that you’re still trying to live in.
It takes only a few minutes to find out if your home is a good fit for the HomeLight Buy Before You Sell. There’s no cost or obligation to apply. With our innovative equity unlock calculator, you can be approved in 24 hours or less. Once approved, you can submit a strong offer with no home sale contingency. Then, you can sell your existing home with more peace of mind, and possibly staged to earn up to 13% more proceeds.
The road to the closing table
No matter how you choose to navigate your contingent offer, remember the importance of transparency and urgency. When a seller has accepted your thoughtful (and perhaps rather clever) offer, it’s time to kick into overdrive and get things done.
“Buyers have to be willing to move forward with their due diligence right away,” says Lagrois. “Sitting around and waiting is definitely not in anybody’s interest.”
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