Your house is on the market and you’re getting a few showings. Then you get the call from your listing agent saying: “I just a call from another agent and their clients are going to submit and offer”. YEA!!! That is great! The sellers and the listing agent are happy.

Later that night the offer comes in and it is a decent offer, but unfortunately it is a contingent offer. Now the listing agent is not so happy. The seller’s are still happy because they don’t understand the ramifications of accepting a contingent offer.

First of all, almost all contracts are contingent on something. Every stipulation in a contract, by definition makes the contract contingent on that stipulation being successfully met. This article concerns only real estate purchase contracts that are contingent on the sale or close of another property and the other property is not under contract at the time the contingent contract is submitted.

In this buyer’s market most listing agents and sellers will be happy to get any offer, contingent of otherwise, but the sellers need to understand the pros and cons associated with a contingent offer.

Pros –

A buyer liked the property good enough to submit an offer. That’s saying something these days in this down market.

The terms in most contingent offers are usually pretty good and often favorable to the seller because most buyer’s agents understand that not all sellers will accept a contingent offer, and they need to “sweeten the pot” to entice the seller to consider a contingent offer.

If a better offer comes in later that the sellers want to accept, they can invoke the “First Right of Refusal” clause and notify the original buyers that they have (a predetermined amount of time – usually 24 or 48 hours) to remove the contingency and continue with the purchase. If the original buyers can not remove the contingency, the original contract is terminated and the sellers are then free to contract with the second buyers.

Cons –

I don’t know about other MLS systems but in our MLS when a contingent contract is accepted, the MLS makes us change the status to ”Contingent”. The majority of agents when searching for property for their buyers will not even search for contingent properties, therefore the number of showings the seller will get are drastically reduced. This reduction in showings will reduce the chances of getting a better, “non-contingent” offer. This con basically cancels out the pro mentioned above regarding the possibillity of invoking the "First Right of Refusal" clause. If showings are drastically reduced, the chances of getting a better are drasitically reduced.

The sellers are at the mercy of the market and the potential sale of the buyer’s existing home. Arbitrary dates are initially inserted into the contract saying the buyer’s existing home will close and they can remove the contingency in 45, 60, sometimes 90 days. When it doesn’t sell in that timeframe, the buyers usually ask the sellers to extend the original contingent contract to give them more time. At this point the sellers feel like they have to because they have only had 1 or 2 showings for the past 90 days due to the “contingent” status in the MLS. If they weren’t locked into this contingent contract, and their MLS status was “Active” they could have possibly sold their house weeks ago.

I have seen contingent contracts drag on for 6 months before the sellers finally had enough and refused to renew the contingent contract. That’s six months of absolutely wasted time for the sellers. Now the house may take another 3 to 4 months to sell and may have taken on a stigma in the neighborhood because there has been a For Sale sign in the yard for so long.

There are some pros and some cons and some agents may have a different opinion, but I think the cons for the seller, far outweighs the pros.

Contingent contracts are good for buyers, but I think sellers should avoid them when possible.

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