Guest post by Bonnie Marlow, Broker/Owner of Cisco Realty
Families who outgrow their current dream home and are ready to find a new one are often faced with a problem; how can they buy their new dream home without getting stuck with two mortgages?
Your Real Estate Agent can help you put your home on the market and navigate the tricky waters of how to buy your new dream home contingent on selling your current home.
Contingent signifies something being conditional, not locked down. It can be a scary word! However, when negotiated correctly, it can save you from going into major financial stress when moving from one home to the next.
When you buy a new house contingent on selling your existing home, it means that you buy the home only when and if your current home sells. These contingencies typically have a time frame. This means you only have 30, 60, or 90 days to find a new home to purchase or the purchase contract is terminated. The exact amount of time depends on how many days are written into the contingency in the purchase offer. However, the home seller may be willing to offer an extension at the end of that period if you need more time.
The Kick-Out Clause
Additionally, home sale contingencies typically have a kick-out clause. The kick-out clause allows the seller to continue to market their home. If they find another buyer with an acceptable offer, even though you are still trying to sell your house, you typically have 24, 48, or 72 hours to continue with the purchase immediately or the contract is terminated, and the seller can accept the new offer.
This kick-out clause is to protect the seller from missing out on a sale. The 24, 48, or 72 hours written into the kick-out clause allows you time to talk to your lender to see if there is any way to proceed before selling your current home. If you have had a lot of activity on your home and expect it will sell soon, your lender may be able to help you come up with a good option to keep moving forward without losing your new dream home.
How common are contingencies?
Home sale contingencies are not unusual. In 2019, 48% of all buyers and 71% of repeat buyers owned their previous residences, according to the National Association of Realtors. Nearly half of all buyers are moving from one home they own to another, so buying a house contingent on selling yours is an everyday obstacle for buyers and sellers.
Even if your existing home is under contract to sell, it can be important to still have a home sale contingency in your purchase contract of your new dream home. This protects you if the sale of your existing home falls through for any reason or is delayed. If your existing home sale closes, then your purchase of your dream home continues. If your sale falls through before going to the closing table or is delayed due to the home inspection, appraisal, financing issues or other reason, then your purchase contract is terminated or may be extended.
On the flip side, if you put your current home up for sale before finding a new dream home, you may be worried about being left homeless if you find a buyer quickly, especially in this sellers’ market. In this case, your real estate agent can list your home contingent on you, the seller, finding suitable and acceptable housing. This would need to be written in the accepted purchase contract. In this instance, the sale would only move forward when or if you find a new dream home to purchase. Meanwhile, the buyer can continue to look at other homes for sale. If they find a different home to purchase before you find your dream home, they can be released from the contract, and you will need to find a new buyer for your home. This protects the buyer from being held up indefinitely.
Keep in mind that although a home sale contingency may protect you from owning two homes, you may still be out some money if your purchase falls through. You may still spend money on home inspections, bank fees, and appraisals fees. These expenses are not refunded even if the sales contract is terminated.
Home sale contingencies can help you in your home search when you need to sell your existing home before purchasing a new dream home. The exact details of any contingency must be specified in the purchase offer. Make sure to go over them with your Real Estate Agent and make sure that you understand the terms of your home sale contingency. Signed purchase offers are legally binding contracts.
Happy house hunting!
Bonnie Marlow – Broker/Owner
333 W. Spring St.
St. Marys, OH 45885