And, with the persistent low inventory we have been experiencing, it is understandable that no one wants to sell their home and the wind up without a place to live - or wind up going from one AirBnB to another while driving the kids to school. Getting outbid in multiple offer situations or just not finding the property you want is a real consideration for most.
When you need the proceeds for your down payment or have to remove the mortgage payment from your credit report to qualify for the new loan (and for many it is both), you have to make you offer to purchase contingent on the sale of your current home. You can also make the sale of your current home contingent on finding you new home (up-leg), but let's hold that thought until later.
Right about now, a lot of folks ask something like "but Ellis, aren't all offers contingent?" Well sort of, in most cases. The standard offer usually includes a loan, appraisal or inspection contingency. I say "standard offer" but if you are paying "all cash" or in a highly competitive situation you might strategically waive some contingencies (although I usually advise against it if a loan is involved).
The situation I am going to discuss in this post is when in addition to the usual contingencies found in the Residential Purchases Agreement (R.P.A.), you have to also incorporate the C.A.R form C.O.P. which makes the purchase contingent on the sale of another property which in most instances is your current primary residence.
Before we go further, let's take a look at this form and then discuss the variations it can have.
WILL MY CONTINGENT OFFER BE ACCEPTED?
In very competitive Seller's Markets like we have been seeing the last few years in Redondo Beach and most other desirable SoCal coastal communities, it is often quite difficult to get your contingent offer accepted. Why is that? Well Sellers want as much certainty as possible and and there are already more than enough moving parts in any Real Estate transaction that if one variable can be removed, all the better.
Hot new listings, first week on the market, multiple offers, it is very hard to have your contingent offer accepted unless you are offering something to make it worth the Seller's while. That could be a much higher price, extended or free leaseback, purchasing the property "as-is", just whatever it takes. Even then, there is little or no guarantee.
The longer your home is on the market, the more likely the odds of getting a contingent offer accepted. I have successfully had my Buyer's contingent offers accepted and I have accepted contingent offers on my listings so I have visibility to both sides of the equation. Here's how "listing agents" tend to look at contingent offers - assuming they have the experience to know what to look for.
Your strongest contingent offer is when your home is listed, in escrow and your Buyer has removed all their contingencies. If your sale will close within the 17-21 days of your purchase escrow that would fall within the normal loan approval period, even better. An experienced listing agent will call the lender and agent for your Buyer and do their due diligence on their sale.
The next best position you can be in is if the home you are selling is in escrow and the Buyer's contingencies will be removed during the same time frame as your loan contingency has to be removed. Slightly different than the example above because the previous example included closing during the loan contingency period.
Next up is your home is listed but not in escrow. A heavier lift but it certainly shows good intent.
The weakest position is when your home is not listed and obviously not in escrow. Very difficult to get that offer accepted. Let me share a recent story in Redondo Beach of how I was able to make exactly that happen.
1638 Havemeyer Lane Sold / 317 Avenue E Purchased
My clients found their dream home, or maybe better described as their dream location, 437 Avenue E pictured above, because the property needed a lot of updates. They wanted to submit an offer. Only problem was that they needed to sell their current home first and it wasn't listed. Obviously not wanting to miss out on the up leg we wrote and submitted a contingent offer with the contingency being the sale of a property not currently listed (pictured at the top of post).
So we submitted the offer none the less and it was met with underwhelming enthusiasm because not only was it contingent on a sale but also $50K under the asking price. Low ball? Yeah, sort of. I was told that the Seller was looking for a "clean offer". Well we all are.
In any case a few days later the listing agents recontacted me and asked if my clients were still interested and would they want to be in "back up position 1". (I'll write about back up offers in another post.)
No sooner had my clients agreed to be in the back up position then the listing agents contacted me again and said the other Buyers changed that they would accept our (low ball) offer. Well they didn't say low ball but it was $50K less than listed.
Now here's how I structured the offer.
We wrote a 45 day close of escrow and that the sale of property contingency was in place until the close of escrow of Ave E. Got that? (If not, call me.)
Now the fun part - list and sell the current primary residence.
More on that later.....