It is tricky. It is challenging. It is nerve-racking. And it can work.
A tale of two scenarios
How does contingency work in selling and purchasing a property? There are two avenues. First, a property can go on market on the contingency that a replacement property is secured by Seller prior to the execution of the contract on the sale of the property. A second scenario is that the prospective Seller purchases a property on the contingency that his property must sell first.
With interest rates so low, the pandemic persisting, and our changing family needs, many folks are considering purchasing a larger property or a single-family home instead of a condominium or other less expensive alternatives. In order to accomplish their goal, they must use the equity from their current home to purchase a new home. Some Sellers can accomplish such a purchase by using a Home Equity Line of Credit (“HELOC”) to increase their cash and secure a first mortgage loan for the remainder of the price.
But what do you do when your dream home costs more than your HELOC and existing mortgage combined? Before you can purchase your desired property, you have to sell your existing one.
It’s a Seller’s market
Today’s market, as we know, is more of a Seller’s market — inventory is low and demand is high, particularly for single-family properties. As a result, sellers can still succeed when a property is listed for sale with the contingency that a replacement property is secured.
Some real-life examples from this past year can help to illustrate the challenges and successes of contingency sales.
- A Hawaii Kai single-family homeowner wanted a larger single-family home in Hawaii Kai, preferably with a mother-in-law unit. The 3-bedroom, 2-bathroom home received multiple offers even with the contingency that Sellers would take up to 60 days to secure a replacement property. It turns out that larger properties in Hawaii Kai, especially with separate units, are in high demand as well! Fortunately, we found a home, negotiated a contract, and closed the deal.
- Another Hawaii Kai townhouse owner decided that she wanted to purchase a single-family home in Hawaii Kai. Finding a Buyer for a townhouse with a contingency that the Seller find a replacement property was not quite as quick and easy. Many who are purchasing a townhouse are first-time Buyers and they need to move in as quickly as possible. My Seller decided to take a chance and sell her property without the contingency. She would find a rental in between if we were not able to find a replacement property. As soon as we went into escrow on her sale, we stepped up our efforts to get that replacement property. We found her dream home and negotiated a contingency on the sale of her townhouse already in escrow! Both sales have closed successfully and both new owners are very content.
Goodwill and Cooperation are key
Contingency sales are not easy – they require cooperation and goodwill on the part of all parties: Buyer, Seller, Realtors, Bankers, Loan Officers, and Escrow Officials. These types of sales can be very challenging, but I have become quite an expert at them in order to get results and to help make people’s lives better. So, give me a call, and we can determine if a contingency sale might be right for you!
