Benefits of Buying a House Contingent on Selling Yours
Hey y’all, it’s Zach McDonald, your real estate agent with Real Property Associates, and today we are going to discuss the benefits of buying a house contingent on the sale of yours.
Well, if you’ve been following this channel for a while, you would know that right now as of recording this video, my house is under contract contingent on the sale of another buyer’s house. And in a more balanced real estate market, a home sale contingency is a more common or normal occurrence. But right now, as we’ve been in a hotter market here in the Seattle area, it’s pretty rare to have a contingent sale. Now, over the past year or so, as the market has been shifting and home prices have come down, homes have been taking a little bit longer to sell. We’ve seen an increase in contingent purchases, whereas maybe we didn’t even see hardly any in the previous few years. So what does this mean? Why would a buyer think about buying contingent? Previously, I made a video on how to buy a house contingent on the sale of your house.
I made that in the past, so we’ll link that up down in the description. But today, I’ll just give you a brief definition and really what a home sale contingency is, is the buyer has a house and in order to make the purchase, they need to sell that house first, and the contract is conditioned on that. So if for some reason the buyer’s house doesn’t sell, they can’t find a buyer or that buyer falls through, they would then have the opportunity to back out of the contract and get their earnest money or good faith deposit back. Now, for a seller, that’s an additional layer of protection for the buyer man. In an ideal situation, you have fewer contingencies when you’re a seller, but normal ones would be financing or a home inspection. A home sale contingency is just an additional layer on top of that.
I’ll tell you as a seller, it causes more anxiety. It also gives you less confidence that this transaction is going to close and get to the finish line. But for a buyer, there are lots of benefits to a contingent purchase. And real quickly, in Washington State, at least in our MLS, the Northwest Multiple Listing Service, we have two different types of contingencies. We have number one, a home sale contingency where the buyer needs to list their house and they have a designated time to do that, and then they also have a designated time to get their house under contract. That would be the first option, and I would say as a seller, probably the least desirable. Now there’s a second option where the buyer already has their house under contract and then they make their offer contingent on that successful closing. So those would be the two different types of contingencies that a buyer can deploy to protect themselves and move forward with a new home purchase.
Alright, now let’s talk about a few of the benefits for in specific for buyers when they’re purchasing a home contingent. Number one, they are mitigating risk. So if you’re a buyer and you’re making a home purchase, there are lots of variables to consider. You may be jumping out into a purchase and you’ve got another mortgage already. Maybe you don’t know how long it’s going to take to make that purchase. So it allows for you to essentially hedge your bet as you’re going for that new purchase. You don’t have to make any big moves, you don’t have to do anything creative financially. You can just start searching for a house. Now, number two, or the second benefit here is that you avoid paying two mortgages. And I mentioned that earlier. If you are able to pay two mortgages, which I was when I purchased my house, my new house, I now am responsible for paying two mortgages, and that’s not very much fun, at least not for very long.
And there are many buyers that have found themselves in that position when the market’s more competitive and a contingent purchase is not an option. So they have to go that route, or maybe they have to sell their house first, move out of the house and be extremely inconvenienced. So in this case, you are able to make that offer and you don’t have to carry both mortgages because in order to make the purchase, the other house needs to sell first and then a few days later, usually then the closing on the new purchase happens, and you never have to carry both mortgages. You also don’t need to come up with funds in a creative way. Number three on our list is financial flexibility. I think as a homeowner you generally have a lot of capital tied up in your house. Now, there are ways to get that money out, maybe a home equity line of credit or a cash out refinance.
But in a market where interest rates are a little bit higher, those aren’t really the most desirable options. Sometimes I guess you could do a bridge loan as a buyer, which also is fairly expensive. But as a buyer with a contingent purchase or a home sale contingency, you are able to keep your money in the house and then roll that money into the new house. You don’t have to take any unnecessary financial risks like having to mortgages. At the same time, you also reserve the right to potentially back out of that other contract if you don’t get a favorable price or terms for your current house. So again, it just maintains the flexibility so that you can make that purchase, but also make sure that it works out for you in all of the other ways. Now, I would say a fourth benefit, and maybe not the last one, but the last one we’ll talk about here today is just a smooth transition.
I don’t think anybody wants to move out of their house, sell their house, or maybe sell their house and move out and have nowhere to go put their things in storage and then make a home purchase. And that’s the case for some buyers who are unable to make a purchase and carry two mortgages. Some people have the luxury, a lot of people do not. And in that case, if you can’t make a contingent purchase, now you’re in a tough situation, maybe requesting some type of a rent back from a buyer, or if that doesn’t work out completely moving out of the house, or in an even worse situation, maybe scrambling to make a home purchase and maybe not getting the best option, especially when there’s not as much inventory. So if I was a buyer and I owned a home, I would want to make it as smooth as possible.
And in this case, your closing on the new purchase would just happen a few days after you complete the sale. Typically, you can request a few days to stay in the house and you’re able to just move everything into the new house, one move effortless, and you don’t have to worry about juggling money and taking out different loans. It’s just so much better in a lot of different ways. So four benefits mitigate risk, avoid paying two mortgages, financial flexibility, and then also that smooth transition, I think make a contingent purchase really favorable for a buyer. Now, it’s not necessarily what the seller wants, but if the seller has a little bit less negotiating power, or if the house has been on the market for a while and they want a home sale, this is your opportunity as a buyer to take advantage. Thanks so much for watching this video as we discuss some of the benefits of being a buyer that is purchasing a new home contingent on the sale of their current house. If you find yourself in this position, maybe looking for a new home and moving up, or even if you find yourself wanting to downsize and you think this might be a great option, feel free to reach out.