Pros and Cons of Home Sale Contingent Purchase Offers

Traditionally, clients search for a new home and then submit an offer contingent on the sale of their current home. This approach has notable pros and cons for both buyers and sellers. This type of offer is typically acceptable to a seller when the supply-and-demand dynamic is balanced or favors the buyer (i.e., more supply, less demand).

However, in a seller's market characterized by limited supply and high demand, offers with a home sale contingency are generally not competitive and are rarely accepted.

There are two primary types of home sale contingencies:

Type 1: Your current home is not yet on the market or does not have a pending sale with an accepted offer. This presents a high risk for the seller of the home you wish to purchase.
Type 2: Your current home is in escrow with an accepted offer, and ideally, all buyer contingencies have been waived with a near closing date. This presents a low risk for the seller of the home you wish to purchase.

You will have more options as a buyer with a Type 2 home sale contingency, even in a balanced or seller's market. If your home has broad market appeal and is in a high-demand location, a Type 2 home sale contingency is a viable option for you to consider. You should be able to negotiate terms with a buyer that include a Seller Occupancy (rent-back) after Closing provision, allowing you sufficient time to find and acquire your next home.

“Contingency for Sale of Buyer’s Property” pros and cons of this contingency clause for both the Seller and the Buyer in a real property transaction:

🟢 PROS & 🔴 CONS FOR SELLER
✅ Pros for the Seller

1. Back-up Offers Allowed
   The seller can continue marketing the property and accept back-up offers while under contract, preserving flexibility.
2. Right to Cancel
   The seller retains broad rights to cancel the agreement if the buyer fails to meet key milestones, such as entering escrow, delivering evidence, or closing on their own property.
3. Demand for Removal of Contingencies
   If a back-up offer is received, the seller can demand that the buyer remove all relevant contingencies and provide proof of funds, increasing certainty.
4. Time-Sensitive Safeguards
   Seller is protected from extended delays due to built-in timelines for buyer’s performance.
5. Changes the target from a difficult-to-sell home to one that sells more easily

❌ Cons for the Seller

1. Increased Uncertainty and Risk
   The seller’s sale depends on the buyer’s success in selling another property, which introduces external risk.
2. Possible Delays in Escrow
   Escrow may be prolonged if the buyer encounters issues with selling their current property. Requires a Seller Rent-Back after Closing for occupied properties to mitigate risk and facilitate moving timing coordination.
3. Buyer Can Cancel
   The buyer has cancellation rights if their own property doesn’t sell, which may result in the seller losing time on the market.
4. Perceived Market Weakness
   Other potential buyers may see the contingent status as a weakness and avoid engaging with the property.

 
🟢 PROS & 🔴 CONS FOR BUYER
✅ Pros for the Buyer

1. Reduces Financial Pressure
   Buyer can make an offer on a new home without the financial strain of owning two properties simultaneously.
2. Contractual Protections
   The contingency gives buyers a legal right to cancel without penalty if they can't sell their home.
3. Time to Coordinate Sales
   Buyers have time to list, enter escrow, and close on their property before committing to buy the seller's property.

❌ Cons for the Buyer

1. Vulnerability to Seller Cancellation
   If the seller receives a back-up offer, they can pressure the buyer to remove contingencies or cancel.
2. Limited Negotiation Power
   Buyers with a contingency may be viewed as less competitive, especially in hot markets.
3. Fewer Homes to Choose
   Unless the real estate market has an oversupply of homes for sale, most sellers will not accept an offer with a home sale contingency.
4. Pressure to Perform Quickly
   Timelines are tight—e.g., 17 days to enter into a contract for their own property—and failure results in potential cancellation.
5. Increased Documentation & Obligations
   Buyer must provide evidence of listing agreements, MLS status, escrow activity, and contingency removals, creating administrative overhead.

1. Transparency and Updates
   Sellers retain control by requiring Buyer to disclose updates and contingency removals in the sale of their home.

Another option to consider is interim financing, such as a bridge loan or a cash-out refinance, to leverage a portion of the equity in your. This could involve either a second loan added to your existing first loan, or a "cash-out refinance" to secure a new first loan that provides a down payment for your next home.

Pete Sabine
Real Estate Consultant
Call or Text 925.787.2548
Dudum Real Estate Group
DRE #00889760