Although most offers contain contingencies such as home inspections and financing, when people talk about contingent offers they are usually referring to offers contingent upon the sale of another home.
There was a time when contingent offers were fairly common, but that hasn't been the case for some time. This year buyers are thinking more about making contingent offers again because they are afraid they won't be able to find a home to buy after selling their current home. Unfortunately, contingent offers usually can't compete in a multiple offer situation but if the property isn't selling quickly it can be good for both buyer and seller.
Sellers are often reluctant to accept a contingent offer, but with today's strong seller's market it may not be as risky as it once was to expect the contingent property to sell provided it is in good condition, in a desirable location, and priced appropriately. The bigger risk could be for the buyer losing out to another buyer if the seller gets another offer and the contingency is called.
While both buyers and sellers should be thoughtful and cautious about
contingent offers, it can be a win-win. Contingent offers put the
sellers in a better negotiating position to obtain a good price…
buyers can put their home on the market knowing they have the home they
want to buy waiting for them… and with a low supply of inventory there
is a good chance the contingent property will sell in a timely manner.
Details of a contingent offer in Minnesota
- The contingency addendum gives the address of the contingent property, states that it is currently or will immediately be listed for sale and includes the name of the listing broker
- The addendum includes the date by which the contingent property must be sold or the purchase agreement will be cancelled and the earnest money returned to the buyer
- The seller can continue to offer the property for sale and negotiate with other buyers
- If the seller comes to an agreement on an offer from another buyer, the seller submits a 'Request for Removal of Contingency' to the contingent buyer
- The contingent buyer then has the amount of time specified in the addendum (usually 48-72 hours) to remove the contingency
Removing the contingency
- The contingency is automatically removed by delivering a copy of a valid, fully signed purchase agreement for the sale of the buyer's property that is not contingent upon anything other than financing and has a closing date not later than the closing date in the contingent purchase agreement; this means that contingencies for inspection and review of condo association documents must have already been satisfied
- It used to be that the buyer could also automatically remove the contingency by providing 'written proof' that the buyer can purchase without the sale of the property; this provision was removed from the contingency addendum in 2007
- Buyer & seller can agree to amend the purchase agreement to remove the contingency with different terms than specified in #1 above; it could also involve re-negotiating other terms of the agreement