Investment propertySafeguards For Contingent Buyers
Okay, so you"ve finally decided to put your home on the market - after the
holidays - and start looking for that new home. There are dozens of new model
homes to tour, and several areas you are considering. Once you start
marketing your home, what can you do to protect yourself against that "domino"
effect if you go on contract for a new home, while considering offers on your
existing one? How can you minimize your risk, the way a builder does in a new
home purchase?
It"s actually a great idea to "mirror" the builder"s program for purchasing a
new home by conducting the sale of your new home along the same lines. Find
out how much earnest money is required by the builder, and ask the same (or
more) from a potential buyer. If further deposits are required by the builder
along the way, ask for similar deposits from your buyer to feel confident that
they are as committed as you are to the purchase. This may give you the
feeling of lessened exposure in your transaction.
Your real estate agent can guide you through this process; ask him or her to
"structure" counter-offers to buyers so as to minimize your risk. If you look
at new home purchase agreements, there are time frames and safeguards in place
for all kinds of elements of the agreement. Many new home contracts ask for
written preliminary loan approval within the first 30 days of acceptance.
Depending on the escrow time for the offer on your home, it would be wise to
do the same. This is one of the most critical aspects of either transaction,
because everything hinges upon procurement of a qualified, loan approved
buyer. (Ask your agent to explain the importance on "liquidated damages", so
that you know what recourse you have should your buyer fail to perform
according to the terms of the contract).
Are you afraid your home will sell so quickly that you may not have time to
find just the right new home? Add a clause to your acceptance that gives you
a comfortable time frame in which to find a home, such as "offer accepted
contingent upon seller"s purchase of another home within the first --- days
after acceptance of this contract." I am sure at this point everyone will
want to give you advice on where to find a new home! This is also a great
protection for you if you are moving to an area unfamiliar to you, where it
may take some time to scout all the new home areas.
There are three common scenarios when buying a new home while dealing with
selling your existing one. One is to make a completely contingent purchase
agreement. This is one in which you sign a contract with the builder to buy
their home, but the purchase is wholly dependent upon the sale of your own.
The "up" side of this is that you really are risking nothing monetarily. You
are also put into the position of "first right of refusal" to any new buyer
wishing to purchase the same home. This means that that, if the builder is
presented with a buyer whose position is stronger than yours (home in escrow,
or no home to sell), they must give you a period of time - usually 48-72 hours
- to decide if you can remove your contingency on that particular home site.
If the down payment for your new home is primarily dependent upon the proceeds
from the existing home, you may opt to "let go" of the new home and transfer
your deposit to another home in the subdivision, or bow out altogether. The
"down" side is that you may lose the home site or home of your dreams. Offers
contingent on the sale of a home in a relatively healthy new home market have
the potential to send you and your family on an emotional rollercoaster, so
prepare yourselves for the ride.
Another consideration is to decide not to sign a purchase agreement on a new
home until yours is in escrow. This may limit your time frame to move or find
another home, but can give you the confidence you need to proceed with a new
home purchase. Most builders consider "contingent upon the close of escrow"
to be a fairly sure thing, especially when you and your real estate agent have
furnished the builder with written loan approval for your buyer. If this is
the route you choose, you may need to consider interim housing, should your
new home not be ready for occupancy in time.
The third scenario is applicable only if you have the wherewithal to qualify
for a new home purchase without the proceeds from your existing home. That
is, you are willing to sign a non-contingent purchase agreement with the
builder. You may have your home listed you home through the process of buying
the new one, but are willing to do whatever it takes to make the new home
purchase proceed without the proceeds from your old one. This may include an
eventual change of terms or pricing on your listed home to make it sell, or
even the idea of leasing it out until it sells. This can be a scary prospect
to many buyers who envision double house payments at some point. Your listing
agent is the person to rely upon to communicate recent neighborhood home sale
activity, and should be willing to recommend your course of action.
Hopefully, you would not have to get of the point of renting it out, unless
the prospect of it does not deter you completely.
A real estate expert can guide you through this process as your advocate and
advisor. Just remember that the agent is employed by you during the listing
period. Communicate all of your concerns to your agent so that he or she can
better represent your needs to potential buyers of your home. A good agent is,
indeed a safeguard. Even if your agent does not represent you in the purchase
of your new home, they will want to help you achieve your objective of a new
home purchase if they indeed have your best interests at heart.