According to recent data from the National Association of Realtors, 74% of homebuyers are repeat owners, the highest percentage on record. That means a large majority of homebuyers must consider the sale of their current home prior to buying a new one. After all, few people can afford to hold two mortgages! Home sale contingencies are important here, as they protect buyers from the financial burden of owning two homes simultaneously. However, these contingencies can be risky for sellers, as there’s no guarantee that the buyer’s existing home will sell. In this article, our cash for houses company in Dallas will explore the intricacies of buying a house contingent on selling yours and provide strategies to give you the best chance of buying your dream home.
What is a home sale contingency?
Home sale contingencies are a non-negotiable condition for the sale of a home. It allows the buyer to make an offer on a new home with the condition that they will purchase it only after their current home sells. Here’s how it works:
- Finding a buyer for your current home: You find a buyer for your home within the specified timeframe, which is usually 30 to 60 days. If this happens, the contract for the new home moves forward.
- If you fail to find a buyer: If you don’t find a home buyer within the specified timeframe, the contract for buying the new home is no longer valid. Typically, you will receive any money you put down on the house, and you can start the search for a new home again.
What is the kick-out clause?
In some cases, sellers may include a “kick-out clause” in the contract. This allows them to continue marketing the property and accept offers from other interested buyers. If a new buyer makes an offer, the original buyer is given a short time limit, often 72 hours, to proceed with the purchase or drop out of the sale.
Disadvantages of the kick-out clause
While a kick-out clause can provide certain advantages in real estate transactions, it also comes with disadvantages for both property buyers and sellers. Let’s explore these disadvantages for both parties:
Disadvantages for property buyers:
- Uncertainty: The primary drawback for buyers is the uncertainty of the deal. When a kick-out clause is in place, you risk losing the house you want to buy, as another buyer can come forward with a more attractive offer within the time frame. This can be emotionally and financially challenging , especially when you’ve already invested time and money in the process.
- Limited control: Buyers have limited control over the situation when a kick-out clause is triggered. You are often given a short period, typically 72 hours, to either remove the contingency and proceed with the purchase or walk away. This can be a tight timeline, leaving you feeling rushed or pressured into making a decision.
- Competitive disadvantage: In competitive real estate markets, where multiple buyers may be interested in the same property, buyers with a kick-out clause may be at a disadvantage. Sellers tend to look for offers without such clauses to avoid the uncertainty associated with them.
Disadvantages for property sellers:
- Potential delay: The presence of a kick-out clause can delay the selling process for the seller. While they may have accepted an offer from a buyer, the uncertainty of whether that buyer will ultimately proceed or not can lead to delays in closing the deal.
- Continued marketing efforts: Sellers with a kick-out clause may need to continue marketing their property and accepting offers from other potential buyers during the contingency period. This can be time-consuming and may not yield results if the first buyer ultimately removes the contingency and proceeds with the purchase.
- Complex negotiations: When a kick-out clause is involved, negotiations can become more complex. Sellers need to balance their commitment to the initial buyer with their desire to keep the property on the market and potentially accept a better offer.
- Strain on the buyer-seller relationship: The presence of a kick-out clause can strain the relationship between the seller and the initial buyer. If the initial buyer is unable or unwilling to remove the contingency and another buyer comes forward, this can lead to disputes and conflicts.
- Disclosure requirements: Sellers may be required to disclose the presence of a kick-out clause to subsequent buyers. This disclosure can influence the negotiations and potentially deter other buyers from making offers.
Other common types of contingency clauses
In addition to home sale contingencies, there are several other common contingency clauses in real estate transactions, including:
- Inspection contingency: This allows the buyer to request repairs or cancel the contract if the inspection report reveals issues.
- Financing contingency: The buyer is allowed to back out of the deal if their mortgage or financing proceedings fall through.
- Appraisal contingency: Here, the buyer has the option to renegotiate or cancel the contract if the property’s appraisal falls short of the purchase price.
- Title contingency: If the title inspection uncovers problematic issues, the buyer can then request remedies and repairs from the seller (at the seller’s cost) or withdraw from the purchase.
Home sale contingencies – Strategies for success
If you’re looking to make a contingent offer on your dream home, here are some strategies to increase your chances of success:
List your house before making an offer
Sellers are more likely to accept a settlement contingency than a sale and settlement contingency.A settlement contingency protects you in case your current home sale isn’t successful.
Prepare your house for a quick sale
Ensure your current home is in its best possible condition, addressing any issues that may slow down the sale. Consider fixing inspection-related problems, making home repairs, and addressing cosmetic issues before hosting an open house. Move personal effects into storage and stage your home to make it more attractive to potential buyers.
Offer more than the asking price
To reduce the seller’s focus on home sale contingencies, consider offering above the asking price. A higher offer can make your contingent offer more appealing.
Ask for an extended closing
Request an extended closing period to provide more time to sell your current home.
Use a bridge loan or HELOC
Use a bridge loan or a Home Equity Line of Credit (HELOC) to fund the purchase of your new home before selling the current one.
Sign a rent-back agreement
Consider a rent-back agreement that allows you to stay in your current home temporarily (paying an agreed-upon amount of rent per month – usually market-related) while buying a new one.
Buy first and rent out
You can purchase your new home and rent out your current one until you’re ready to sell it – but keep in mind these considerations if you want to be a landlord in Dallas.
Sell first and move temporarily
Sell your current home and move to a temporary residence while searching for and purchasing your new home.
Work with a reputable cash for homes company in Dallas
A cash for homes company can sell your home in 24 hours, giving you a market-related price and allowing you to make the sale required for your new home. Be sure to read this before you sell your home for cash.
Dealing with home sale contingencies is a common scenario in the real estate market, but it comes with its challenges. To increase your chances of buying your dream home, you need to prepare your current home for a quick sale, make a compelling offer, and consider alternative options like working with the best cash for homes company. It’s important to have a clear understanding of the contingency clauses before proceeding with a real estate transaction. With the right strategy, you can navigate this process successfully.
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