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Contingent Offers
In Arizona real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren’t met. A commonly used example is that of a buyer making an offer on a new Arizona home before selling his existing Arizona home. The buyer needs to sell his present home before being able to get financing on the new one. So he makes his offer contingent upon the sale of his existing home. There will always be a time period associated with such a contingency. If the buyer is able to get his present Arizona home sold within that time period, the deal can go forward. But if he fails to sell within the specified time period, the seller has the option of getting out of the deal. In most cases, sellers won’t accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first. But new home builders are often willing to accept an offer contingent upon the sale of an existing home.
Financing. Contingencies that depend on the Arizona buyer being able to obtain financing are very common.
Home Inspections. Probably the most common type of contingency is the “contingent upon satisfactory completion of inspection”. There are any number of specific types of Arizona inspections for which a contingency might be included in a contract. Some of the more common would include inspection by a qualified home inspector for hidden defects, pest inspections, water and sewage system inspections, inspections dealing with the presence of radon or mold, etc.
Appraisal. It’s not unusual for a buyer to have a contingency that allows for a formal appraised value at or above purchase price. Since lenders will nearly always want an appraisal performed too, sellers usually don’t have a problem with this. Remember, just like everything else in Arizona real estate contracts, contingencies are negotiable. Always take care before signing that you are comfortable with all contingencies included in your contract. Likewise, take time to think about what contingencies you might like to have added.
In the Arizona Real Estate market the word “contingent” caused sellers to cringe or say “what is the next buyer offering.” The issue of course was that if the buyer’s contingent sale of their own home fell through the seller was then also left high and dry with no buyer to purchase their home. In years past, the contingent issue was compounded by the fact that many would be buyers could only sell their home via an Arizona short sale which almost always immediately disqualified them for any type of new mortgage product (some exceptions exist). Rising values are making contingent offers a much less serious issue in the Phoenix market.
Contingent Sales: Are They the Norm?When I began my career in the mortgage industry in Arizona in the early 2000′s a large percentage of the purchase transactions I worked on were contingent. It was normal. Most people (excluding first time homebuyers) had a home that in many cases needed to be sold. Sellers were not afraid of a contingent offer. People listed their home, someone bought it and the Real Estate world continued to spin round and round. As we know that changed .Fast forward to today and we find ourselves in a Real Estate market where homes are selling fast (many buyers would say too fast!). As such, an educated seller knows that if the buyer of their home has a home to sell there is a good chance it will sell allowing the buyer to closer. There is and always has been an inherent risk with a contingent offer. A contingent real estate deal could fall through due to a mortgage lender issue, an inspection issue or an appraisal issue. Those risks were present then (early 2000′s) and they will forever be present. There are however ways to mitigate and minimize these risks in a contingent real estate situation.Making the Best of a Contingent Real Estate Offer in ArizonaSellers are always looking to find the best offer on their home. They look through (or in this market you could say sift through) offers that were submitted on their home. The goal is to make your offer stand out from the others and to make the seller feel confident your offer will CLOSE! How do you do that with a contingent offer? Here are a few tips:1. Let the seller know the inspection is complete on the contingent home:If a buyer places a contingent offer on a home, showing the seller that the buyer on their home (the contingent home) has already completed and accepted the home inspection will show that the buyer’s home sale process has cleared one major hurdle – the inspection. With the inspection being one element that can derail a contingent transaction showing that this part of the process is successfully completed will eliminate one layer of risk.2. Communicate to the seller regarding the appraisal & inspection completion:If a buyer places a contingent offer, it may be helpful to tell the seller of the home they are offering on when the inspection is scheduled and when the appraisal is scheduled for the contingent property. This way the seller of the home the buyer is offering on will know when 2 of the 3 biggest hurdles will be cleared. The fear of many seller is that they will accept a contingent offer and then waste 30 days of “on market time” if the deal falls apart at the last-minute. By communicating the inspection and appraisal dates it will help the seller understand the status of the contingent home. In addition, it may be a good idea to make the outcome of the inspection and appraisal terms of the offer (i.e.: buyer to communicate when inspection/appraisal are ordered, completed and if there were any inspection issues that cannot be fixed and if the appraised value was high enough).3. Update the seller on the “Fat Lady” factor: mortgage approval:This is the 3rd variable that can derail a contingent sale – Arizona mortgage approval. As they say, “it ain’t over til the fat lady sings” and this is undoubtedly how the seller will feel about the contingent buyer’s mortgage approval. If the contingent sale is cash – skip ahead! If the contingent buyer is a financed buyer using a mortgage it may be helpful to update the seller of the home you are offering on with the status of the contingent buyer’s mortgage. What type of loan are they using? How much money is the contingent buyer putting down? Is the loan DU or LP approved? Where is the loan in the overall mortgage process – processing, underwriting etc…?There is no Perfect Plan but a Plan is Better Than No PlanAt the end of the day, “contingent” does not equal “ideal” in the eyes of a seller. However, a contingent offer that has been further “qualified” and outlined will certainly look better than the alternative. Use these tips to help boost your contingent offer. Todays’ market is full of people “moving up” or “downsizing” and contingent offers will become more and more commonplace.If you have any questions please call or email us!By Jeremy HouseGoogle
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