If you need to sell your current home first in order to fund the purchase of a new one, you should consider including a home sale contingency as part of your real estate purchase contract. A home sale contingency gives you a period of time to list and sell your current home before you close on a new one. If you can't find a buyer for your home, the contract will be canceled, and you'll be able to back out of buying a new home. Below, you'll find three tips that can help you successfully use a home sale contingency to buy a new home.
1. Start the Process of Selling Your Home as Soon as Possible
If you need to include a home sale contingency as part of the contract, you should have a real estate agent list and market your current home before you begin looking for a new one. If you're not able to show sellers that you're currently in the process of marketing your home, they may be wary of allowing a home sale contingency in the contract. A seller has to wait for your home to sell before they'll receive any money from the deal; if you're not even marketing your home yet, they may assume it will be a long time before the deal closes. You need to start the process early in order to reassure sellers that you're trying to find a buyer for your home.
2. Prepare to Respond to a Seller's Kick-Out Clause
When you're including a home sale contingency as part of your real estate contract, your seller may require a kick-out clause to be added to it. A kick-out clause allows a seller to keep their home on the market while you're waiting for your home to sell. If the seller finds a new buyer, you'll have a short period of time to cancel your contingency and move ahead with the purchase without selling your own home beforehand. You can also decide to cancel the contract entirely, allowing the seller to sell to the new buyer they found.
A kick-out clause protects the seller by allowing them to continue looking for buyers while waiting on your home to sell. If you're trying to purchase property in a fast-moving real estate market, expect the seller to receive another offer. You should plan in advance what your response will be—either canceling the contract or moving ahead with it and owning two homes at once (and potentially paying two mortgages) while you wait for yours to sell. You won't have much time to respond to the seller, so you'll need to have a plan in place.
3. Look for Homes That Aren't Selling
When you're searching for a new home and are planning on including a home sale contingency, it's a good idea to focus on properties that have been on the market for a long period of time. Sellers that are having trouble finding a buyer are more likely to allow contingencies, and that includes a home sale contingency. If your current home is in a hot real estate market, it helps even more. You'll likely be able to sell your home before the seller can find a new buyer, which means they'll be more comfortable with a home sale contingency in the contract.
Overall, a home sale contingency protects you from ending up with two homes (and two mortgages) if you have trouble selling your home. Using a contingency successfully takes some special consideration into your home buying approach, however, since sellers may not want to wait for your home to sell before they close on the deal. If you're planning on using a home sale contingency, it's a good idea to work with a real estate service who has experience with them; they'll be able to help you find a seller that's having trouble finding a buyer, which is the type of seller that will be the most comfortable allowing a home sale contingency.
Contact a local real estate service to learn more.
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