Breaking down home sale contingencies

Buying and selling simultaneously can be daunting. We previously discussed one way to do this using a HELOC in this article. That option may not be for everyone, and some banks can have restrictions on using HELOC funds for this purpose. 

Another strategy for buying and selling simultaneously is to make the offer on a new home contingent on the sale of your current one.  

This approach hasn’t been viable these last couple of years due to how competitive the market has been for buyers—adding a home sale contingency weakens your offer as it adds uncertainty and risk of fallout for the seller. Now that the market is softening, this option is again becoming more feasible. 

In fact, I recently had success helping a buyer purchase a home in Takoma Park using a home sale contingency! Was it easy? No… it definitely resulted in a rollercoaster of emotions when the home that they needed to sell fell out of contract, which jeopardized the purchase contract on their dream home. Luckily we were able to keep the contract on the new home together by quickly getting the home that needed to sell under contract again, and my clients are now happy new homeowners of a gorgeous home on Flower Ave. 

In addition to a potential domino effect of emotions, using a home sale contingency can result in less favorable terms. Any time you add uncertainty to a contract or offer (in the form of asking a buyer to give you a contingency to find a new home or asking a seller to accept a home sale contingency), you usually need to offer something else in exchange in order for the other party to consider it (such as more money on a purchase or reducing price on a sale).  

That said, a home sale contingency can be a powerful tool when it’s not an option to separate the two transactions of buying and selling.

So that you can better understand how home sale contingencies works in our area, below is a summary of the two options:

OPTION 1: Settlement of Buyer’s Property Contingency

This is the option more likely to be considered by a seller because it has less risk of fallout. It’s used when your current home is already under contract and all/any contingencies in that contract have been satisfied (inspection, appraisal, financing). This means you need to list your home first and then shop once you’re under contract with contingencies removed or near-removed.

Pros – If the sale of your current home doesn’t go through or is delayed, you can void the contract on your new home and your earnest money is protected.

Cons – You need to be under contract on your current home with all contingencies satisfied (this puts you about two weeks prior to settlement on your current home). To help make sure you don’t end up homeless, we can negotiate in the contract to sell your current home either a “home of choice” contingency and/or a “rent back” period of up to 90 after settlement. The home of choice contingency states that you can void the contract on your current home if you don’t find a new home. The rent back period gives you time to shop for, close on, and move into your new home after you’ve closed on your current one.

OPTION 2: Sale of Buyer’s Property Contingency with Kickout

This contingency gives you three (3) days to list your home after going under contract to buy the new one and then gives you a certain amount of time (e.g. 30 days) to find a buyer of your current home and get through all contingencies in that contract.

Pros – You don’t need to list your home first. If you don’t find a buyer for your current home, you can void the contract on your new home and your earnest money is protected.

Con – Less likely to be considered by a seller as there is less certainty associated with it. Need to be ready to list your home asap (3 days) after finding the new home.

As always, we are here for you to break down and/or demystify these processes! Every transaction looks different so let us help figure out an option that works best for you!

Work with Melody Goodman

Melody is an earth-conscious Realtor® who is passionate about helping buyers find their ideal home, guiding sellers through this hot market, and inspiring everyone to live happier, healthier, and more sustainable lives. A Realtor for 15+ years (with 10+ in the DC area), Melody has experience navigating an extreme buyers market, sellers market, and everything in between.