Contingent Offers And Why They Shouldn't Be Confusing...

Recently I received an offer from a buyer's agent who presented it with a contingency document. They don't teach you much about Contingencies in Texas Real Estate School. Unfortunately for the public, its simple understanding comes with experience and usage.

Imagine listing your home for sale, then getting an offer which is then executed (all parties have signed). After negotiating inspections you are faced with the challenge of moving out and finding a new home while you still haven't closed on the house you currently own. How do you do this?

A single document known as a contingency or it's actual name: Addendum For Sale Of Other Property By Buyer, If executed correctly, prevents you from owning 2 houses at once.

1. It informs the seller (the home you want to buy) that you have to sell your home BEFORE you close and fund on their home.
2. You must obtain proceeds from the home you are selling BEFORE you will buy the sellers home.

This should be a simple document to understand, but for some agents, sellers and buyers it is not. The other two components involved in this document are:

1. Date
2. Additional Earnest Money Amount.

It is always possible for the SELLER to receive another offer in addition to the one they just executed with the buyer. Ordinarily (not in a contingency situation) this new offer, once executed would be identified as a BACK-UP contract and only used if the original contract did not close or if the buyer lost it's financing. In a contingency situation the seller has the opportunity to negotiate a new offer and potentially accept it. The seller must give you - THE CONTINGENT BUYER the opportunity to WAIVE THE CONTINGENCY first, however.

What does this mean? It means that your contingent contract is now being asked to no longer be contingent. On anything. If you as a buyer are VERY CERTAIN that your home that you are selling will close, than you have the option to DROP/WAIVE the contingency. If you do this, you are EXPECTED to deposit ADDITIONAL EARNEST MONEY. Imagine being the SELLER. If you as the seller are going to kick another offer to the curb you surely would DEMAND the original buyer put MORE money into the game. Right? I always ask for at LEAST $2,500.00 as a Listing Agent.

The additional earnest money + the original earnest money now gives the seller added financial compensation & security if the buyer does not perform/close.

Let's now discuss the date portion. Simple question: As a buyer who had to sell their home first before they bought a home, how much time would you need to decide if wanted to move forward or not? 1/2 day, 2 days? As a listing agent representing a seller I never provide more than 24 hours. Remember the seller has a pending offer! They don't have 5-7 days to wait!! The pending offers buyer(s) may just decide to move on.

As a buyers agent you would love to hold a seller hostage for say 7 days without depositing additional money. I always try. Does your agent understand a contingency offer?

And you thought Real Estate was so easy a cave man could do it.