For homeowners looking to upgrade — or downsize — their residences, it's a difficult chicken-or-egg question: Which comes first, buying a new place to live or selling an old one? Each situation presents a potentially thorny set of issues.
Buy a new home before you sell your current one and you may get stuck with two homes and two mortgages, particularly in today's dicey real estate market. But sell your current home before falling in love with a new one and a different challenge emerges: Will you have time to find an acceptable place to live before closing day?
A solution for some buyers and sellers, and one some real estate agents say is gaining increased acceptance in the housing downturn, is making an offer contingent on the sale of a buyer's home. That's especially true as homes languish on the market month after month, notably in the upper bracket.
Specific time frame
Typical real estate contract contingencies give buyers time to have a home inspection performed or obtain financing.
A contingent sale offer gives buyers a set period, often 30 or 60 days, to list their home and enter into a contract. Most contingency agreements contain a kick-out clause: If your dream home's seller receives a noncontingent offer during the set time period, you typically have a day or two to rescind the contingency or risk losing the home.
During the allotted time period, most sellers continue to show their homes, but traffic is typically lighter because the contingent offer must be noted in the multiple listing service, causing some Realtors and potential buyers to bypass the property, said Naperville real estate agent Peg Redding of Keller Williams Infinity.
Contingent offers also have the potential to create a precarious chain. If one person in the chain fails to sell a home or get financing approval, multiple contracts can topple like a house of cards, Redding said.
That makes them unappealing to some sellers, particularly in a healthy real estate market.
Pros and cons
Contingencies limit a buyer's or seller's responsibility to fulfill a contract and close a real estate deal.
"In a strong real estate market, it's harder to get away with (a sell contingency)," said Eric Tyson, co-author of "Home Buying for Dummies." "It adds another element of uncertainty to the deal."
Strong offers include a fair sale price, preapproval from mortgage lenders and no contingencies, said Tyson. But, "a mediocre offer is better than no offer," he said, and for some sellers, particularly of higher-priced homes with fewer potential buyers or homes that have been languishing on the market, a sell contingency might make sense.
"If someone is having a tough time selling, has done all the right things and there's some impetus to move," a sell contingency might be appealing, Tyson said.
A contingent sale offer makes sense in some cases, agreed Mary Bremer, a Keller Williams Realtor who works in the western suburbs. For example, the buyer's home may be more likely to sell than the seller's because it is in a lower price range or a highly desirable location. What's more, some sellers may be willing to entertain such an offer because they wish to limit or take a break from showings, particularly if their home has been on the market for months or if they have no set deadline for moving.
Buyers and sellers considering a contingency can ensure a smoother transaction by educating themselves and considering a few points first, said real estate agent Bob Floss of Bob Floss and Son Realty and president of the Chicago Association of Realtors. With this type of transaction, it is crucial that buyer's and seller's agents work together closely, he said.
The seller's agent will often tour the buyer's home before accepting a contingent sale offer, checking the property's condition and location to judge whether it is likely to go under contract during the specified period. The seller's agent may even have a hand in setting the price or determining how long the home should be on the market before a price drop.
Specific time frame
Above all, sellers should protect themselves by limiting the contract period to 30, 60 or 90 days at most, Floss said, particularly in today's market.
"When a buyer gets a long contingent, they continue to shop and look for a better deal," he said, leaving the seller "between a rock and a hard place."
Floss cites a case where a seller gave his buyer six months to sell and saw his own property plunge nearly $100,000 in value during the contract period due to short sales and foreclosures in the neighborhood. The buyer, perhaps understandably, then wanted a price adjustment.
Jessica White and her husband, whose Wheaton home is on the market, recently made a contingent sale offer on another Wheaton property.
"It was the second day the home was on the market, and we fell in love with it," White said. "Even the kids liked it."
But when she lost the home to a noncontingent offer the same day, White said she shed a few tears.
"You see this house, and in your mind it's perfect," she said.
It's that kind of emotional reaction that causes real estate agent Dean Moss of Dean's Team Chicago, a Keller Williams affiliate, to advise buyers to steer clear of contingent offers in most cases. Homebuying taps deep feelings, Moss said, and buyers can have their dreams dashed if they aren't in a strong position when they make an offer. They might also end up paying a higher price to compensate for an offer that is less than ideal.
Home under contract
Don't put the cart before the horse, Moss advises buyers who have a home to sell.
"Before you start looking for a house in earnest, you have to get a contract on your current house," he said. "Do what it takes to get your house sold."
Most homebuyers have multiple choices of properties that fit their needs and are in their price range, Moss said, so they needn't worry about missing out on that elusive "perfect property."