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  • Real Estate Advice: Contingent Offers

    Posted on November 22nd, 2013 acimetta No comments

    In the South Bay, as in much of the country, we are currently in a Seller’s Market. There is a lack of inventory and a lot of buyers. It’s simple economics: supply and demand. High supply and low demand is a Buyer’s Market; low supply and high demand is a Seller’s Market. And when supply and demand are relatively on par, we have a balanced market.

    Seller’s Market
    So if you’re a buyer in this environment, you have some challenges to face. You will be pitted against other buyers who are paying all cash or who are making large down payments or who are willing to shorten or remove contingencies quickly. You need to make your offer as competitive as possible if you want the seller to choose your offer over the others.

    Contingent Offers
    But for some buyers it can be even more complicated than this. Some buyers need to sell their home before they can buy a new home (their “upleg”). They are taking the money from the proceeds of the sale of their house and putting it toward the down payment for their new home. Consequently, the offer they make is contingent upon the sale of their home. It’s hard to compete with other buyers when you still have to get your home on the market, find a buyer, and close escrow. Most sellers are going to want as close to a sure thing as possible. An offer contingent upon the sale of the buyer’s property is not a sure thing. So in this seller’s market, it behooves a buyer who has to sell their home to get their home on the market first and lock in a buyer, and then make an offer on an upleg. The key is to sell their home contingent in that way letting the buyer of their property know that the seller is allowed to cancel the deal if they don’t find an upleg.

    For example, Bob is selling Home A and wants to buy Home B. Bob should list Home A and sell it contingent upon buying Home B. Bob secures a buyer for Home A and the further along he can get in the escrow of Home A will improve his chances of getting an offer accepted on Home B. Here are some of the scenarios:

    Bob does not have Home A on the market and he makes an offer on Home B.

    Bob has Home A on the market and he makes an offer on Home B.

    Bob has an accepted offer on Home A and makes an offer on Home B.

    Bob is in escrow on Home A and makes an offer on Home B.

    Bob is in escrow on Home A and the buyers of Home A have removed all their contingencies. Bob makes an offer on Home B.

    As you can see, the seller of Home B will probably prefer the last scenario. The buyers for Home A are locked and loaded, and Bob is ready to move forward in an escrow on Home B with less risk than if he didn’t even have his home listed for sale yet. The further along you are in the process of selling your home, the better chances you have of getting an offer accepted on your new home.