real estate

Contingency Strategies for a Smooth Sale

Contingencies protect you and your buyer, but they can also sabotage a sale.

Once you've negotiated price and closing costs with your buyer, it's time to get down to the special provisions of the contract -- the contingencies -- that protect your interests and those of your buyer. As a seller, you want to ensure that the buyer's contingencies don't ruin the deal for you.

Sellers most often include in the contract two common contingencies: The purchase contingency gives you 30 or 45 days to buy your next home, and the leaseback allows you to live in your current home for a while after closing. Those provisions will help you avoid the hassle of moving twice -- first into a rental, and then into your next home. Seller Steve Vieux asked his buyer for both contingencies, as did the sellers who sold him his next home. The downside? While you're renting your former home, you're responsible for fixing anything that fails on your watch. For example, Vieux had to pay to replace a water heater.

Buyers typically request a financing contingency. If they fail to get a mortgage or loan terms agreeable to them, they can bail out of your contract and you must refund their earnest-money deposit. This could send you back to square one, looking for a new buyer. You could avoid such a delay by accepting cash-only offers, but that limits the number of buyers.

The best strategy is to price your home so you receive multiple offers, and then you can be selective. Choose the buyer whose financing is most likely to go through. "Twenty percent down is a very warm and fuzzy feeling. Fifty percent is beautiful, and cash is great," says agent Janis Morgan.

If your house will appeal to first-time buyers, they may want Federal Housing Administration financing because it requires a down payment of only 3.5%. Be forewarned: If the home has defects that will cost a borrower of modest means too much to repair, you will have to ante up the cost of repairs or FHA will refuse financing for that home.

If you're anxious to settle and move on, consider passing up a higher offer with a financing contingency in favor of a lower one without it, says agent Bob Bower. Don't agree to a financing contingency unless the buyers present a preapproval letter from their lender (or a "certificate of eligibility," if they will seek a VA loan) with their offer.

Most buyers will want a home-inspection contingency. Purchase contracts generally say that sellers will turn over homes in "normal" working condition (unless the property is being sold "as is"). If the inspection turns up a problem that affects the home's habitability, you'll have to repair it. If the inspection turns up other, lesser issues, the buyer may ask you to take care of those, too. You can protect yourself from excessive costs by setting a limit upfront on the contingency.

Most Popular

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA
IRAs

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA

Traditional IRAs are set up in a way that basically incentivizes you (and your heirs) into paying the highest tax bill possible. Don’t fall for it. Co…
July 4, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 15 Best Stocks for the Rest of 2022
stocks to buy

The 15 Best Stocks for the Rest of 2022

The lesson of the past two years: Be ready for anything. Our 15 best stocks to buy for the rest of 2022 reflect several possible outcomes for the seco…
June 21, 2022

Recommended

Protecting Your Home from Lawsuits with a Dynasty Trust
real estate

Protecting Your Home from Lawsuits with a Dynasty Trust

An irrevocable dynasty trust can play a valuable role in keeping the valuable equity in your home safe from personal and business-related lawsuits.
July 1, 2022
New Services Offer Help Making All-Cash Offers
Becoming a Homeowner

New Services Offer Help Making All-Cash Offers

Some firms help home buyers make all-cash offers on homes. Weigh the fees before you sign on.
May 25, 2022
12 Cheapest Small Towns in America 2022
real estate

12 Cheapest Small Towns in America 2022

Affordable small towns might not be for everyone, but their charms put them among the best places to live for plenty of folks.
May 25, 2022
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
April 28, 2022