What is a Contingent Offer?

Finding the home of your dreams before you have managed to sell your existing home can put you in a quandary. A contingent offer can give you an out. Making a contingent offer lets you pursue the house you want to buy while giving you a safety net in case your current home languishes on the market. 

Basics of a contingent offer

If you really need to sell the house you are living in to access equity and make a new home purchase, a contingent offer can give you some flexibility. 

There are two basic contingencies when it comes to your offer:

Settlement contingency

If you’re within a whisker of closing on your own home sale (already marketed your home, got an offer, accepted it, and are waiting for closing) then you need a settlement contingency. 

The seller can’t accept any other offers while this clause is in effect (usually up to their own closing date with you.) If for some unforeseen reason your home sale falls through, you can walk away at any time before that point.

If your home closes, the contract you’ve signed with the seller is valid and you must proceed to buy their home. If your home doesn’t close, your contract terminates, you get your earnest money back, and the seller can put the house back on the market or accept another pending offer. 

Sale and settlement contingency

If you haven’t even gotten or accepted an offer on your current home, you’ll need a slightly more detailed contingency written into your offer. Since you are nowhere near closing, it doesn’t make sense for the seller to take the home off the market. 

They will keep the home listed and if they get another offer, you’ll have around 24-48 hours to remove your contingency and buy their home. If you can’t remove the contingency, the contract terminates, you get your earnest money back under the contingency clause, and the seller can accept the other buyer’s offer. 

Should you make a contingency offer? 

Getting stuck with a home that didn’t sell and a fresh home purchase can mean you are dealing with two mortgage payments. If you can’t handle that much outgoing monthly debt, or your lender won’t approve your home purchase with that kind of DTI ratio, a contingency offer can help you walk away without taking a hit. Just be aware that in competitive markets, a seller may not be willing to waste time on a sale and settlement contingency or even just a sale contingency.