Contingent offers – how do YOU feel about them?
My $300,000 listing has been on the 2 months and continues to get a steady stream of showings. I always get positive feedback. One Realtor said her Buyer loved the property, but it was his first day shopping, so he still wanted to look. Another Realtor’s Buyer loved the property, but his wife was too ill to see it – I am still waiting for them to return. Another Realtor’s clients loved the property, but it was at the top of their price range and they were not sure if they could forgo an in-ground pool – there’s certainly room to build one, but they likely won’t have the money to do so. 
I have received NO poor feedback and no complaint on price.
We received an offer Saturday contingent upon the Buyer’s out-of-town home selling. The offer is almost full price and financing seems solid. Buyers did not ask for closing costs and asked for a small amount in repairs.
The Buyer is suppose to list her property with a Realtor tomorrow. I requested a copy of the listing agreement and Realtor’s MLS data, so that I could see the selling compensation offered. I also asked for a CMA.
Before I presented the offer to my Sellers, I mulled over why I tend to not show contingent properties. I couldn’t come up with a rational reason, but the truth is, if my search brings up multiple properties, I will skip the one with a contingency.
I mentioned this to two other Realtors and they both said they do the same thing, but none of us can come up with a reason why we tend to skip over properties that have a contingency.
Fortunately, I know a Realtor in the town where the property is. As soon as I get a copy of the listing, I’m going to ask her to visit the property and let me know if she thinks it is priced to sell and get her opinion of how long it will take to sell.
Since we received the offer (which we are still negotiating), the property has been shown twice. The steady stream of showings still amazes me. It's a unique property and absolutely beautiful.
When I called my Seller today with a counter, she asked my opinion of rejecting the contingent offer and let the Buyers come back and make another offer after their property sold. I told her that we could lock the Buyers in at a known price with their contingent offer, but if their home was still on the market two months from now after the Buyer's home sold, they would most likely make a much lower offer at that time.
So, lock the almost full-price offer now with a contingency and risk missing a few showings or reject the contingent offer?
Do you have a tendency to skip over contingent listings, and if so, why?
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Lori is a residential Realtor with Chinowth & Cohen Realtors serving the greater Tulsa area and specializing in downtown Tulsa and midtown Tulsa real estate.
Hi Lori ~ Yes I do tend to skip over contingent offers, even if it is a subject to sale contingency that we're talking about. Sometimes I mention it to buyers that it might be worth looking, since a subject to sale contingency still means it would be worth putting in an offer, but usually they don't want to go that route.
I think they feel there is less chance to negotiate if there is a subject to sale contingency on a home and at least here in Iowa City we do have a market that is driven by price, so that is definitely a negative.
You're definitely right that the buyers in your case are likely to make a lower offer if their current offer is rejected and they come back after their home is sold. Tough call. The best scenario would be if the buyers home sold quickly - I hate to turn people away in this market.
Denise
Just connected the dots with the picture Lori - a little slow today... So is a bird in the hand better than one in the bush? Only your sellers can decide that.
Denise
So, you think we tend to skip over contingent offers because we PERCEIVE that there is less room to negotiate? In this instance, the Buyers have 48 hours (to include one business day) to remove their contingency. That had not really occurred to me.
Would it make a difference to add some type of verbiage in the Broker's remarks stating that there is a 48-hour contingency clause?
Linda & Denise -- thanks for your feedback. This would be a no-brainer decision for me if the house had only been shown once in the last month. I'm truly stumped as to how to advise my Sellers!
In Califronia, legally we have to present ALL OFFERS. However, my advice would absolutely be not to take the offer. If the buyer wants to come back after they have sold their home and it is still on the market, then so be it. If it hasn't sold by then, the price would have to come down anyway. Also, to take a contingent offer with no guarantee that they will ever sell makes no sense. One could lose out on a better offer.
But, again, we do have to present the offer here.
I very rarely show contingent listings. There are so many others to choose from and if a buyer wants a house they rarely want to sit on the fence to wait and see what might happen. Plus contingent listings do not get sent to online clients that want listings, it just confuses them.
Lori ~ I'm back again. I don't always think we need to advise in the strictest sense of the word. How about you present the options as you realistically see them? It's risky accepting an offer with a subject to sale contingency, because the chances of another offer coming in while it's contingent are low. (Perception is reality as I'm sure you know and buyers do perceive things differently when a home is contingent - as do agents). OTOH, you're getting showings, so there's still a good chance someone else will come along - but no guarantee - at least not as far as time frame is concerned. (All houses sell sometime). So now let the sellers make the decision. Like I said, tough call!
Denise
Hi Lori - Saw your plea for comments. ;)
I would show contingent offers to my clients and work out a way to benefit them. If I feel that we should get an offer soon, without this buyer, then I would add verbiage that during the contingency period, seller may back out of the offer as well. That way, if a better offer comes in, the seller can go with that one.
If the buyer can qualify for a loan with their existing home, I would also counter the contingency and remove it all together or maybe we might change the purchase offer to an purchase option contract where the seller gets an option payment which will be applied to the purchase of the property if the buyers end up buying the property or forfeited to the sellers if they end up not exercising the option.
So many ways to work this to make it beneficial to the seller, so I would definitely show it.
Sorry that I didn't clarify this -- I have already presented the offer to the Seller and we are currently negotiating. In Oklahoma, we are legally bound to present all offers also.
The ball is back in our corner and I have advised my Sellers that we should not respond with a counter until I see the Buyer's listing agreement and CMA (and get the opinion of the local Realtor in that town).
We still advertise contingent listings and they still go out on internet searches along with active listings.
My Sellers are expecting a recommendation from me as to whether they should reject or counter this offer.
Satar - our standard verbiage on a contingent contract is that the Seller has the RIGHT to market, advertise and show his property. Should he receive an offer he wishes to entertain before the Buyer sells his home, he notifies the Buyer, and the Buyer has 48 hours to remove his contingency. If the Buyer is unable to remove his contingency, the earnest money is returned and the contract is null. At that time, the Seller can negotiate the new offer.
SEEMS like a win-win for the Seller, but the reality is that Realtors tend to NOT SHOW contingent properties to prospective Buyers.
Oh, that's interesting about the verbiage. But the whole contingent thing still doesn't make sense. If both the Buyer and the Seller have an out at any time there doesn't seem a point. The only benefit is to the Buyer who, should an offer come in, can opt not to lose the home and remove the contingency. However, they also lose out in this market as, if they waited, and the house was still on the market when they sold theirs, then they might be able to get it for a lower price. Also, they run the risk of being in the process of selling their home and find out that the Seller took another offer. Oy. I would advise my sellers not to touch one.
Oy. Jane, you crack me up. Is that what y'all say in LA?
I'm definitely leaning towards recommending that they reject the offer. As you pointed out earlier, IF the house is still available once theirs is sold, we would have to be prepared to sell at a lower price by then anyway.
Hi Lori. We have the same verbiage. Like you said seems like a win-win, but reality is Realtor's tend to not show them and most Buyers will pass on them too. There's just too much inventory out there to "waste time."
In our market, most Buyers are from FL so most Sellers won't even consider a contingent OTP. Thinking that even though it's still being marketed, they will lose showings and other potential Buyers while waiting for a long-shot.
Your advise to see the Buyer's listing agreement, CMA and getting the opinion of the local Realtor in that town was very wise.
Lori ~ Seems to me the sellers are kind of leaning towards not going with the offer anyway. (Wish people would read posts properly before commenting). All you really need to do is lay out the different scenarios and they'll make the right decision. Better they make the decision than you advise them to the point of making the decision for them. I don't think that is ever a good idea.
Denise
Lori - We accept contingent offers. It is a pretty common occurrence. We do the same thing before accepting - review CMA, eyeball the property, checkout commission split, etc. We just want to make sure that the property is likely to sell. As to properties marked contingent, I must admit that I put them at the bottom of the list unless they are pretty much an exact fit for my client's needs. However, it has to be a pretty unique list. Otherwise, I focus on what is readily available. I use a similar approach with FSBOs. We don't typically focus on them unless there is something unique about the house or location.
Denise - the Sellers truly are waiting for my recommendation, which I can't give until I see the CMA, listing agreement, etc. But, you're right - I need to lay out the pros and cons and let them make the decision.
Homes in the $300K range are not moving well in Tulsa, yet this one continues to get showings. So, what do you think about a property that gets continuous showings, positive remarks and no offer? Then a contingent offer. Wish I had a crystal ball!
Thanks to you all for pitching in!
Hi Lori ~ Last time I comment on this post I promise! I actually have a listing that gets continuous showings, shows really well with no complaints from agents about price and still I haven't seen any offers yet. (It's not in the $300K range, but otherwise I have the same scenario). I sat down with my clients last week and they decided to sit tight, not get impatient and trust that the right person will come through in good time...Not big on the patience thing myself, I know how tough that is. We're always talk about homes selling fast sell closer to the listing price. Sometimes we need to look at the house, the market and the number of potential buyers out there before making that assertion. There are exceptions to every rule.
Denise
Denise - you comment all you want - you always have great input!
Funny how sometimes Realtors can be more impatient than the Sellers, yes?
Lori, if i do skip over a contingency is when there are ample properties listed and so with many alternatives I can find one that is ready. The other issue is when many Realtors do a 48 hour kick out that is too long. A buyer may miss out. I would show a 24 hour kick out however. On the listing side I give the pros and cons to the seller and let them decide.
Lori,
Our MLS shows when a property is under contract with a 48 kick out clause. When I am showing property, I will show a home that I feel my buyer can purchase if the price is right as long as the property seems to be a close fit (as long as there is a kick out clause). It does make a difference if there are many alternatives (other properties just as nice). I have been in the same situation as you. In that situation the seller gave the buyer so many days or weeks to sell their home (to perform) and then the buyer's ernest money was nonrefundable ($5,000). In my case, there were two offers and both buyers had a home to sell. Ultimately, the buyers walked because they did not want to make a serious commitment... they wanted their ernest money refundable up to the day of closing if their home did not sell. Then a third offer came along that was cash and we closed. Good Luck.
Joe, I will give them pros and cons and let it be their decision. I know I'm leaning towards rejecting the offer. For fuure reference, I'll remember the 24-hour clause.
Damion - thanks for sharing that experience. These Buyers have already said they don't want to perform inspections until their home is under contract. They actually gave me a $1000 earnest money check on a $300K house. I told their Realtor we would require $3K minimum, but it didn't occur to me to make it non-refundable.
We'll see how serious these Buyers are. I also found out from the local Realtor that the home to be sold was just purchased last year. She sent me a CMA today which clearly suggests that it will have to be listed for LESS than she paid for it, and I don't see that happening.
It's been an interesting discussion, and I appreciate everyone's input.
I'll just add my two cents. I really try to avoid contingent offers. Recent experience - I'm the listing agent for a house priced a little under $500,000. The perfect offer came in - all cash, buyers willing to pay $35,000 over the recent appraisal, but it was contingent upon the buyers' escrow successfully closing. That escrow was really strong - only two weeks to go and those buyers were putting 65% down. Those buyers ended up backing out at the last minute - so the buyers of my listing backed out too. Lesson - no matter how good a contingent listing looks, it still has more risks than a non-contingent listing.
"SEEMS like a win-win for the Seller, but the reality is that Realtors tend to NOT SHOW contingent properties to prospective Buyers."
Thanks for the info. I see your point. It is a difficult decision if the MLS is your only source for buyers.
It depends on the contingency. Active with contract in our MLS does show the what factor. But yes if 50 houses come up in the search and 3 are Active with contract, then they usually do not get on the A list. And the reason, the buyer would be in a back up position. We do have the 48 hr kick out clause where the buyer one has 48 hrs to remove the contigency or the new offer becomes first. Actually the buyer who needs to sell a house in our market here is a Seller, not a Buyer. How realistically is the buyer pricing the house? How much demand is there for the house? What condition? How strong is the listing agent as to marketing? So many factors!
Vicki - glad you only had a 2 week period. I like your point: Lesson - no matter how good a contingent listing looks, it still has more risks than a non-contingent listing.
Update: they listed the property $25,000 higher than the local Realtor I know recommended. The property was purchased July 31, 2008 for $298,000 and the local Realtor I consulted with sent me a CMA showing that prices had dropped in that area. They listed at $323,500.
I think you're talking about what we call here, a 'conditionally sold house'. It would depend on what the conditions or contingencies are.
In the case where a Buyer has to sell their house, it would depend on the market and the list price.
I recently had a listing that everyone loved as well. Absolutely no negative feedback, but it would definitely suit a specific type of person (profession). When that person walked in, they absolutely loved it, and asked if my client would accept an offer, conditional on selling their home.
I told them the listing was hot, there were non-stop showings, and if they wanted to give it a shot, it would have to be full asking price, a big deposit (earnest money, I think you call it), and I would need to see their home uploaded to the MLS system. This home was not in our area, but I had access to their MLS comparables (and they were reasonable with their asking price).
They came back with what I asked. I had my clients accept it, BUT with an escape clause - meaning that if another offer came in, with no contingency, we would give them 48 hours to remove the conditions, or we would take the other offer. Worked out great.
As far as me showing properties that are already under contract, it would also depend on what the reason is. I don't discount them, and I don't put them aside. If they are exactly what the buyer is looking for, I explain things to them. If one of them had this type of condition, where the accepted offer meant the buyer had to sell their house, I would definitely show it immediately - especially if my buyers didn't have a home to sell.
Sylvie - glad yours worked out.
In THIS instance, we turned down the contingent offer because they did not price their home realistically.
Lori, that's a big part of why ours worked out. How can they expect the seller to just sit there, for months and months waiting for them? Hopefully they will reduce the price, sell quickly, and come back and put in an offer. Good luck. :)
Lori, I do show those that have contingency clauses with a kick-out clause. If the existing offer has to sell their home before they can buy,.. there's a chance that thy may not be able to buy without selling. The key is that the offer has to be good enough for the seller to activate the kick-out clause. Then if the first offer is unable to come the closing table...
Thanks Sylvie & Judi - I think we may have accepted their offer with a kick-out clause IF they had priced their home aggressively. However they didn't, so we rejected their offer.