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How To Avoid Contingency Issues That Derail Your Closing

With the summer real estate season in full swing, it seems everyone is on the move and we can all benefit from sharpening our skills.

Contingencies of varying degrees are likely as renters become buyers. Buyers of another home become sellers, and those sellers become buyers again.

In the chaos of multiple parties buying and selling, everyone has a situation and/or concern that has to be dealt with to cross the finish line to closing.

Contingencies can often become a hesitation point when an offer is made, but they don’t have to be.

Here are seven workarounds and how to implement them:

1. Home sale…

This is one of the most common contingencies in real estate. How many times as agents have we heard that the buyer just loves the house but, they have to sell their home first to buy another one?

Rather than just writing an open-ended offer with a contingency on the sale and closing of the buyer’s home, it’s more effective to make an offer with a home sale contingency subject to a limited time frame on the buyer getting their home under contract.

The proposed time period should balance the realities of marketing times of the buyer’s property while trying to keep it relatively short and reasonable for the seller.

For this tactic to be successful, so much of this depends on the price point and market of where both the buyer and seller’s homes are located.

In addition, the kind of buyer traffic coming through the house must also be taken into consideration.

Do most of the buyers coming through have a home to sell?

This strategy often works well on move-up homes in mid- to upper-level price ranges.

I recently had a situation where I employed this strategy for an out-of-state buyer. They were from Ohio, and the move to New Mexico was, in part, an elective one to be closer to family.

They found a house they loved, but their own home was not on the market. They knew that it would sell pretty fast given what had been happening with other homes in their neighborhood, as they lived in a very popular area, where people can walk to town, restaurants, shopping areas and so forth.

We made an offer contingent on the sale of their home within three weeks and closing within a 45-day period.

The offer included a pre-approval letter, along with a letter the buyers who wrote introducing themselves, explaining the reason for their move.

The letter also discussed the neighborhood they were moving from, so as to provide some assurance and information to the seller. The approach worked — the sellers accepted the offer and the buyers put their home up for sale and found a buyer within a week of listing it.

This all transpired in November, which can typically be a more challenging time of year to move.

2. Home sale contingency;  Part 2…

One of the biggest concerns a seller has with accepting an offer contingent on the buyer’s home selling is the loss of marketing time.

Every real estate market has their sweet spot, and depending on when the home comes on the market, there is often a limited window of time for that seller to maximize their showings and obtain an offer.

Being tied up with an accepted offer subject to a home sale can result in a significant loss of marketing time as well as money. Even though the property might be marked as “contingent” in MLS with the reason provided along with a note in private agent remarks to continue to show for backups, most agents will skip right over the listing and focus on those properties that are truly in “active” status.

To minimize loss of market exposure, another effective tactic for this situation is to implement a “Continued Marketing Addendum,” or “Right of First Refusal.” This addendum allows the seller to continue to market the home even though they’ve accepted an offer with a contingency.

Should another party make an offer, the buyer in first position has an agreed upon period (which can range from 24 to 48 to 72 hours) to lift their home sale contingency or step aside so that the seller can work with the new offer. Both parties must sign the addendum. The status of the property is marked as “CTM” or “ROFR” in MLS, which is a different status than simply contingent.

Having the property marked “CTM” or “ROFR” may be a more attractive standing in MLS that will continue to solicit showings. While this can be a successful tactic, the buyer might not want to agree to this, as it leaves the possibility for another buyer to purchase the home if they aren’t able to remove their contingency.

At the same time, this strategy can be beneficial for a seller as it can give them leverage with another buyer that can move forward unencumbered.

The one down side to this tactic is that a buyer will typically request that no contract time frames begin until they have an accepted contract on their home, so a delayed inspection and appraisal process leave room for more delays or the transaction falling apart in the event of unexpected repairs or a lower than contract sales price results.

3. Home sale contingency, Part 3…

The other challenging part of a home sale contingency is trying to figure out when the seller should find another property to buy, rent, or pack up and move out.

The domino effect can be tough and very stressful for all involved, but especially for the last one in the chain, which is the seller.

If they choose to buy something, they too will have to make their offer contingent upon the sale and closing of their home.

No matter how tightly managed a transaction is, sometimes the unexpected can happen, throwing a wrench in the series of closings — or worst case, the sale falls through.

To avoid the moving truck that is all packed up with nowhere to go, negotiate to have the seller retain possession for a certain number of days after closing such as three, for example.

Another option is to have a post occupancy closing agreement executed between the buyer and seller that allows the seller to stay in the home for an agreed upon period of time and pay the buyer based on a prorated amount of their mortgage.

This way, there will be a little extra room to breathe in case the unexpected happens. This might involve belongings being held in a moving company’s temporary storage facility, but it’s better for everyone to have time — without the stress of trying to go from A to B, praying that there isn’t a glitch.

4. Contingent upon seeing the home…

Let’s face it, today is a global world. Buyers and sellers are here, there and everywhere. Many buyers never physically see a property until they close on it.

The sellers list their home, and then go out of town. A buyer comes in town to look at properties. There isn’t much available, and out of what is, the choices aren’t quite the right one.

As Murphy’s law would have it, the buyer goes back home or if from the same area, is conveniently out of town for whatever reason, be it work, vacation of a lifetime, honeymoon, cruise around the world, a trip to the moon, etc., when the perfect home comes on the market. It checks all the boxes and is exactly where they want to be. The problem is, they aren’t here, and it is going to go immediately. What to do?

A savvy agent uses technology to transcend the miles. As long as a cellular or internet connection can be made, the agent can virtually walk through the house with them.

Although it is no substitute for physically walking the property, it is the only option if the buyer wants to have a shot at getting it.

If there is a trusted family member, friend or co-worker nearby, they can also help to be the buyer’s eyes and ears along with the agent piecing together information from a seller’s disclosure (if one exists) as well as looking at records online with permits, etc.

If buyer likes what they see and from information available, they can make an offer contingent upon physically seeing the home by a specified date.

Usually that date will overlap with the inspection and due diligence period. This serves to reassure the seller that your client would not be tying up the home any longer than competing buyers. If the buyer makes a strong offer, the seller might be willing to grant a few extra days for an in-person visit to happen.

I had this exact scenario happen with a buyer a few years ago. Someone had come in town and had worked with an agent who was not suited to meet his needs nor the areas he was interested in.

Unfortunately, it was a huge disappointment, as well as a waste of time as the customer had traveled several thousand miles across the country for this house-hunting trip.

The customer found me through a referral upon returning home. He discussed what he was looking for, and I retooled his search to be on point with his exact criteria.

After a couple of months of monitoring the market together, it did not appear that the right house was coming on the market. He was also looking in other areas of Florida and had gone under contract on a property in another city.

Within a few weeks of him advising me that he had bought in another area, the perfect home came on the market in my beach community.

I knew this house was exactly what he was looking for and decided to notify him immediately. Within minutes of him receiving the listing, he called me and indicated that he was very interested.

As it turns out, his transaction on the other home was falling apart. The property was vacant. A water leak was left untreated, and the house was now riddled with mold.

He wasn’t feeling comfortable about buying a home that required mold remediation and asked me to go preview the home I had found. I jumped into action and sent back photos and video. He and his wife loved it and put in an offer.

We made it contingent upon one or both of them coming to see it within 48 hours of offer acceptance. He hopped on a red-eye flight from the West Coast, and we met for the first time right outside the guard gate.

It was a winner, and they moved forward and bought the home.

5. Contingent upon verification of an issue…

No matter how excited a buyer may be about a property, there is always something that is cause for concern for buyer that holds them up from moving forward in a speedy fashion. This could be anything from verifying that a buyer can obtain insurance, and at a cost they are comfortable with (particularly if a home has older components or if there has been a significant claim in the past), to having a fence put up, a pool added, an addition and so forth.

While a listing agent understands the buyer’s need to verify significant issues in a transaction before moving forward, but they don’t want to tie up the seller’s home with a contingency like this for too long.

From a proactive perspective, a listing agent should anticipate the kinds of concerns that might come up during the buying process before putting the property on the market and work to troubleshoot a lot of these issues in advance. The more information or resources they can provide to prospective buyers and their agents upfront, the faster these contingencies may be resolved.

If a buyer still needs time to investigate matters, a timeframe must be given to help the transaction move along.

Also consider whether the number of days will be calendar or business days. Different purchase contracts in different markets might make a distinction one way or the other, but the reality is that when it comes to verifying something that requires the assistance of someone in an industry that is typically available only Monday though Friday, this might prolong the process.

For example, allowing a buyer 20 calendar days nixes several business days and unnecessarily prolongs the process.

Negotiating for 15 business days for example, might be a better option. It is also important to make sure the additional contingency period is not prolonged so as not to run into the end of the financing period (if applicable) or abutting the closing date.

6. Appraisal contingency…

Virtually any offer with financing is subject to an appraisal contingency. It would be very rare that a buyer who is obtaining financing would waive their financing or appraisal contingency in its entirety.

In extremely hot markets where there are a lot of cash buyers or multiple offers, it may be tough to write an offer subject to a financing contingency with an appraisal wrapped in as part of that.

One way to navigate through this situation is for the buyer to stipulate that if the property does not appraise at the contract sales price, they will agree to pay it, regardless of the appraisal.

This will provide assurance to the seller that the transaction will not get wrangled up in an appraisal situation that could delay and ultimately derail the transaction. This is a risky proposition and not for the faint of checkbook.

A buyer needs to make sure they have the financial strength to put their money where there mouth is should this happen. The agent representing them should do a critical look at the comparables closest to the property the buyers are writing an offer on to see if the asking price or potentially agreed upon sales price is truly realistic.

Conversely, let’s say an offer is contingent upon financing and the appraisal as normal. If an appraisal should fall short of the contract sales price for whatever reasons (sometimes it can be due to an incompetent appraiser or one that was not familiar with the area), and the buyer and seller want to keep the transaction together, both parties could agree to share in the cost of an additional appraisal.

Although the buyer’s lender is not likely to consider it, both parties could agree to take the average of both reports to settle on an agreed upon price. In real life, this rarely happens this way, but it can be an option if all parties are willing.

Perhaps the seller is growing weary of showings, and other offers have not been able to stick, or they are getting to a point in time where they need to go. The buyer is willing to be reasonable, has the additional funds to come out of pocket to make up the difference ,and they too think the house is an ideal fit for them and need to get settled.

Another workaround is if the property does not appraise and a buyer is willing to make up the difference or kick in additional monies to bring the value up, the seller could offer to contribute to the buyer’s closing costs to help offset their additional contribution.

No matter how an appraisal contingency comes into play, a buyer and their agent can help manage the uncertainty of the process by stipulating that the appraisal be completed within a certain number of days.

The buyer and their agent should talk with the buyer’s lender to get a realistic idea of timeframe. While most purchase contracts require the appraisal to be ordered without delay, that is a gray area, and often a buyer can intentionally delay the appraisal from being ordered behind the scenes as they wait to get through inspections and/or any repair negotiations first.

A listing agent on a luxury transaction I was involved with insisted that the appraisal be completed within 10 days from the date of contract acceptance. That was really pushing it on a number of levels, but with a lot of persistence and follow up we pushed the lender to get it all done.

This can be a difficult piece to manage entirely as neither the agent nor the buyer has any control over the appraisal process. The buyer can do their part by making a loan application as soon as they have an accepted offer and paying the lender the appraisal fee upfront.

7. Contingent upon getting out of a lease…

The buyer loves the house, but they are renting and want to make the offer contingent upon getting out of their lease as they don’t want to be stuck with double house payments.

Renters often begin their search three to five months from their lease term ending to allow time to become familiar with the market, explore different areas and make offers, realizing that it might take more than one to secure the perfect home.

Starting the process early can be both a blessing and a curse, in that sometimes the buyer crosses paths with the perfect home much sooner than anticipated.

Depending on how much time is left on the lease, asking the seller to pay some or all of the closing costs might help offset the buyer’s rent until the lease ends.

Also asking for a longer closing might help address this concern as the buyer doesn’t have to make a mortgage payment in the following month after the month they closed. Making a strong offer along with a combination of these two strategies can enable the buyer to secure the house.

No matter the contingency that must be worked through, the onus is on the agent and their buyer to move through the concerns with speed, certainty and resourcefulness.

The agent needs to be ultra proactive in helping push the train forward to ensure the buyer has access to a plethora of people and resources that can assist in getting them the information they need.

Relying on the buyer to get their neighbor’s brother-in-law who is a contractor to look at the property they just went under contract to buy to determine if an addition can be built could mean waiting a long time. Ditto for anything that the buyer might need to check into.

Magically, the buyers that said they have a lot of friends who can give them “people” to contact for x things, magically never seem to be able to reach these people when it’s crunch time.

I’ve seen contingencies lag for days in a transaction with little to no engagement when it comes to problem-solving by the agent or their buyer.

This is how the best of the best of agents shine. They leverage their contacts and connections.

When you can reach out to a trusted vendor at 11 p.m. to get some desperately needed insights, get a response within a matter of minutes and can relay that back to the buyer so there is actually some peace of mind before they go to sleep, you’ve more than proven your worth.