How to Buy a House Contingent on Selling Yours

Selling your home while trying to buy a new house is a careful balancing act. There’s the fear of being “temporarily homeless.” Do you buy first and then list your home? Or do you sell your home and move into temporary housing while you search for your next property?

Many don’t realize that there is a third option: buying a house contingent on selling. When looking for your next home, ask your real estate agent how to buy a house contingent on selling yours.

What Does “Contingent on Selling” Mean?

A contingency is a condition or provision that must be met for the real estate transaction to proceed to closing. Contingencies are included in the purchase agreement to protect the buyer and ensure certain conditions are satisfied before the sale is finalized. If the contingencies are unmet, the buyer typically has the right to back out of the contract without penalty.

The term “contingent on selling” means that when you make an offer on a house, the offer includes a contingency clause stating that you must sell your current house before the purchase can be finalized.

When buying a house contingent upon selling, the process starts when you make an offer. A contingent-to-sale clause typically cannot be added once after a contract is signed. When submitting an offer on a home, the buyer and their real estate agent need to include a contingency clause that gives the buyer a specific amount of time to sell their current house before they close.

The time frame can be negotiated, but it should consider current market conditions and the desirability of the previous home. Typically, buyers will ask for 30-60 days to sell their home; however, in a slower real estate market, they may ask for more time. The buyer must list, market, and sell their current home during this period.

Once the buyer’s home is sold, the contingency is removed, and the transaction can move forward. However, if the buyer fails to sell their home within the agreed-upon period, the deal may fall through unless both parties agree to extend the contingency period.

Advantages of Buying Contingent on Selling

Buying a house contingent on selling can be one of the best ways to transition between properties. For buyers who are simultaneously navigating a sale and purchase, it offers several advantages, such as:

• Reduced Pressure
  Buying with a home sale contingency gives buyers flexibility and reduces the stress of finding a new home during a short timeframe after selling. Buyers are given the time to sell their current home at a fair market price and are not pressured into selling at a reduced price.
• Less Financial Stress
  When selling and buying at the same time, there’s the potential to have to carry two mortgages at the same time if you don’t sell your existing home in time. A home sale contingency helps buyers avoid double mortgage payments.
• Easier Financing
  Most buyers cannot qualify for two mortgages at the same time. A home sale contingency can make it easier to finance your next home, as many lenders are more willing to provide financing if the purchase contract is contingent on selling the current home. Lenders feel assured that the borrower will not get overextended with two mortgages.
• Negotiation Leverage
  If a buyer’s current house is already under contract or has a strong chance of selling quickly, they may have better leverage in negotiating stronger terms on their next house.
• Smooth Transition
  A home sale contingency gives buyers the opportunity to have a smooth transition between their homes, minimizing or eliminating the need for temporary housing.

While buying contingent on selling offers these advantages, it can make an offer less attractive to sellers who may prefer non-contingent offers that promise a quicker and more certain closing.

When making an offer contingent upon the sale of your current home, you may have to include a larger earnest money deposit and be willing to meet the seller’s other demands.

Disadvantages of Buying Contingent on Selling

Home sale contingency clauses give buyers added flexibility and security when transitioning from one home to another, but they are not perfect. There are some disadvantages of home sale contingencies, such as:

• Offers with Contingencies are Less Attractive
  Buying a house with a home sale contingency requires getting your offer accepted by the seller. Contingent offers are usually less desirable than non-contingent offers, which can make your offer less competitive. Buyers need to be aware that they may have to offer a higher purchase price or adjust other terms to accommodate a home sale contingency. In a hot market, many sellers will overlook any offer that is contingent upon the sale of another property.
• Delays Can Lead to Losing the Property
  If your home doesn’t sell within the designated time period, the seller usually has the right to cancel the purchase contract and keep the earnest money deposit, especially if the seller has a “kick-out” clause allowing them to accept a better offer.
• Pressure to Lower the Price on Current Home
  Buyers who have to sell their current home within a set period may feel pressured to lower the price of their current home to encourage a quick sale. As a result, they could end up with fewer proceeds from that sale, impacting their overall financial position.
• Emotional Toll
  The uncertainty and complexity of coordinating two major transactions can take an emotional toll on the buyer and their family. The success of the purchase is heavily dependent on the current housing market conditions. In a slow market, selling the existing home can be challenging, leading to added anxiety.

A home sale contingency clause can be an excellent tool when buying and selling at the same time, but only if market conditions are suitable. Talk to your real estate agent about your current home’s sale prospects and the competitiveness in the market you’re buying.

If your agent thinks that your current property will sell quickly, and you get a contingent offer accepted, then the advantages of a home sale contingency may outweigh the disadvantages.

How to Buy a House Contingent on Selling Yours

Buying a house contingent on selling your current home can be a strategic way to transition between properties. However, this approach requires careful planning and execution and only works in the right market conditions with the best support.

Work with a Qualified Real Estate Agent

If you want to buy a house contingent on selling yours, you need to work with a real estate agent who is experienced in making contingent offers and selling a house within a tight timeframe. If you are staying within the same area, this means finding one experienced agent, but if you are moving out of town, you will need to find separate real estate agents who can work together to complete your deal.

Not all agents are familiar with purchases contingent on a sale. Find an agent who has successfully managed these types of transactions. Their expertise will be imperative to a successful purchase as they will understand how to make your offer as appealing as possible.

Here’s what you should look for in a buyer’s agent:

• Experience with contingent offers.
• Extensive market knowledge and insights into home prices.
• Strong negotiation skills so that they can be your advocate and ensure your contingent offer is considered seriously.
• Excellent communication and organization skills, as they will likely be handling a simultaneous purchase and sale or coordinating with your seller’s real estate agent.

The right buyer’s agent will help you navigate the complexities of buying a house contingent on selling yours. Their professional expertise will give you greater confidence and efficiency. If you need to work with two agents to complete your transaction, make sure that they are in constant communication so that you secure a realistic sale contingency period.

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Understand the Current Market Conditions

Before you start submitting contingent offers, you must understand current market conditions. You don’t want to waste your time or end up disappointed because your offer wasn’t accepted or you couldn’t sell your house in time to satisfy the home sale contingency clause.

In a seller’s market, sellers have an upper hand in negotiations and will be less inclined to accept an offer contingent on the sale of another property. Talk to your real estate agent about your options, such as providing an added incentive (a higher purchase price or removal of inspection contingencies) to compensate for the sale contingency or whether it’s better to forgo the home sale contingency entirely.

You should also talk to your seller’s agent (if they are different from your buyer’s agent) about how long they realistically expect your home to sell and for the sale to close. Their advice will give you the timeframe you should disclose in your contingent offer. A home sale contingency that is too short of a timeframe could result in you being pressured to sell for a lower price or face losing your dream home.

Ensure Your Current Home is Poised to Sell

Once you have a contract signed with a home sale contingency in place, the clock is ticking. Before making offers, you should be confident that your current home is market-ready or even listed on the MLS.

FastExpert’s complete home sale checklist will help you ensure your home is ready to sell so that you can move quickly and complete your sale within the contingency period. Ensure your current residence is market-ready before you start making offers with home sale contingencies.

Get Pre-Approval for a Mortgage

As with any home purchase, buyers must get mortgage pre-approval before making offers. Securing pre-approval for a mortgage shows your seriousness as a buyer and strengthens your contingent offer.

Furthermore, your pre-approval will give you a solid budget that narrows down your search criteria. Talk to your mortgage broker about the expected proceeds from your current residence. Make sure to ask about alternative financing options, such as a bridge loan.

Add a Kick-Out Clause

One of the hardest parts of buying a house contingent upon selling another property is getting a seller to accept your offer. Sellers usually prefer offers that provide an assurance of close, and a home sale contingency can be risky for them. Including a kick-out clause in your offer can provide flexibility for both you and the seller, effectively “sweetening the deal” to make it more appealing.

A kick-out clause allows the seller to continue marketing the property while your contingent offer is in place. If the seller receives a better offer, you will have a specified period to either remove the contingency (by selling your home or arranging alternative financing) or withdraw your offer. A kick-out clause can make your contingent offer more attractive to sellers, as it reduces their risk of losing potential buyers.

Alternatives to a Home Sale Contingency

If a home sale contingency isn’t feasible, you can explore other options to facilitate the transition between selling your current home and buying a new one.

Get a Bridge Loan

Most lenders won’t approve you for two mortgages, especially if you are financing with an FHA loan or VA loan that doesn’t allow a borrower to carry more than one property using that loan product.

A bridge loan can be an effective solution to cover the financial gap between selling your current home and purchasing a new one. This short-term loan is designed to provide immediate funds for your new home purchase, using your current home as collateral.

If you are considering a bridge loan, here are some key points to keep in mind:

1. You will get quick access to funds, which can be an effective temporary financing solution.
2. There are flexible repayment options, often structured around the sale of your existing house.
3. You will pay a higher interest rate compared to traditional mortgages.
4. You will need to meet strict qualification requirements.

Rent Your Current House

If you have the financial flexibility to rent your existing house while purchasing your new home, it can be a great way to transition between properties. Renting your home can provide a steady income stream, helping offset mortgage payments.

Talk to your mortgage broker about the implications of keeping your current house and whether you should consider different financing options.

Explore Lease-Back Agreements

A lease-back or rent-back agreement can be a beneficial arrangement for buyers and sellers, giving them added financial flexibility when transitioning between homes. In a lease-back agreement, the seller receives the proceeds from the sale while still living in the home for an agreed-upon period at a set rent amount.

If you don’t think a home sale contingency is a viable option, selling your current home with a lease-back agreement instead of trying to purchase a new home before selling may be better. Lease-back agreements are usually the preferred option in a seller’s market, as buyers are more willing to accommodate seller demands.

Strategize Your Home Purchase with Expert Guidance

Successfully buying a home contingent on selling your current property requires a well-thought-out strategy and expert guidance. Consider all your options, including alternative solutions, and seek professional advice to navigate this complex process.

By working with a knowledgeable real estate agent, you can make informed decisions and achieve a seamless transition between homes.

Start your next home purchase with FastExpert. FastExpert allows you to easily search for and compare local agents based on their reviews and track records. Use FastExpert today to connect with a professional and take the next step in your home-buying journey with confidence.