By Dian Hymer
Repeat homebuyers are faced with a dilemma: Do they buy first or sell first?
If you buy a new home before selling the old one, you could end up owning two homes at considerable expense. However, if you sell your existing home first, you might have to move to an interim rental if you can't find a new home to buy in time.
To further complicate matters, many repeat homebuyers can't afford to buy a new home until their current home is sold. Either they can't come up with enough money for a down payment, or they can't qualify to carry two mortgages. For these buyers, buying a home contingent on selling their current home is an appealing strategy.
A contingency in a purchase contract is a condition that must be satisfied for the sale to go through. With a contingent-sale offer, the deal is not complete until the buyer's home is sold. If the buyer's home doesn't sell, the buyers are usually released from the contract without penalty and the seller's home goes back on the market.
Contingent-sale offers aren't too popular with most home sellers. A seller who accepts a contingent-sale offer could wait in vain for the buyer's home to sell. In so doing, he might miss out on other good buyer prospects. Sellers who must sell by a deadline usually can't entertain a contingent-sale offer.
Sellers who are willing to consider a contingent-sale offer usually want the purchase contract to include a release clause. A release clause allows the sellers to continue to offer their home for sale. If another buyer makes an offer that the sellers find acceptable, the contingent-sale buyers are notified that they must remove their sale contingency from the purchase contract or lose the house to the second buyers.
First Time Tip: Contingent-sale offers have the greatest chance of being accepted when the real estate market is slow. Sellers who have been waiting for a while for a buyer to make an offer are more inclined to accept a contingent-sale offer than they would be in a fast-paced seller's market.
Contingent sale buyers who are buying in a buyer's market should try to negotiate a purchase contract that doesn't include a release clause. If this approach doesn't succeed, ask the sellers to give you a several weeks grace period before the release clause goes into effect. This way, you have a chance to get your home sold before the release clause takes effect.
Repeat homebuyers who are attempting to buy in a very competitive market will find that contingent sale offers don't work. With multiple offers to choose from, why should a seller accept an offer that includes a risky contingency? In this situation, the best strategy is to sell your home first with a provision that you may need to rent back your home for a time after closing. This will give you time to find and buy your new home.
In some markets, sellers are willing to accept a contingent-sale offer if the buyers have already found a buyer for their home and they're just waiting for the deal to close. This is particularly so if all the contingencies have been removed from the purchase contract on the buyer's home.
Selling before buying may seem riskier than buying contingent on the sale of your home. But you're in a much better bargaining position if you're a non-contingent buyer.
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