Can We Write a Contingent Offer?
The short answer is yes. The long answer is how to do it.
By the time any homeowner has decided to sell, they have an idea of what they want and where they want their next step to be. That decision was arrived at over months or maybe even years of evaluating alternatives. Within that one decision were a million small decisions about finances, how to live, where live, what do we do with all our stuff?
Usually a homeowner thinks they have the big questions answered before launching a hunt for a new home. But, most are working from past experience and things have changed. In hunting for a new home they are really looking for a new lifestyle free of some of the burdens in the past. Last year, I sold two homes based on knee surgery. Stairs were the problem. If the bedroom and bath were upstairs, they felt imprisoned on one floor or the other. They needed one level living where they could move more freely. It's not unusual for a couple to look at each other after a harsh winter, and he'll say, “I'm done shoveling.” She'll say, “I'm not doing it.”
They look at townhomes where someone else does it, or plan a move to a warmer climate.
Every homeowner wants to know where they're going, and that they aren't leaping off the diving board into an empty pool. They’re hesitant to put their home on the market until they secure their future home. They will browse homes, maybe even find one they love, but get stuck in not knowing how to swim through the rapids.
There are solutions:
1. If they own little on their home they could finance the second before selling theirs. They might have to pay two mortgages until the first one is sold, but they're secure that way of having a second home. It does cost them something but they are emotionally secure about where they're going.
Other homeowners who owe little or nothing intend pay cash for the next home. They too peruse homes with the anticipation of making an offer. What they might not realize is that they don't have anything to make an offer with. If the cash that they intend to pay for the second home is from proceeds of the current home, they have no means to prove to a seller that they can actually close on the house. To make an offer they will need earnest money and proof of funds or a letter pre approval from a lender. You can't write an offer, “We intend to pay for this house with cash, but our house is not on the market yet, we don't have an offer, and we won't have any money until we sell our house. But, we’re positive it will sell in a heartbeat in multiple offers.” The seller and their agent will say, “Thank you very much, and we wish you lots of luck. We now have 4 offers on the table. 2 offering conventional financing, one with an FHA Loan, and the other is an investor with Proof of funds.” Next.
This might be shocking to some homeowners, but every seller wants to know that the buyer on their house is going to close on the specific date that they’ve contracted. There are some ways around that. If you do write a contingent offer, your home should be market ready within 24 hours. That means the inspection is done, the photographer has taken photos, marketing is in place. All that remains is to push the go button. I had buyers who needed to sell, and they expected that the other seller would wait for them to prep and sell their house. Their home was nowhere near ready. Mr. and Mrs. Buyer/seller thought it would take a couple hours of cleaning to put it on the market. I saw two weeks’ worth of work. They were distraught and embarrassed to discover that how you live and how are you sell your home are entirely different. When you sell home you detach from it, it’s no longer yours. Buyers want to see themselves in your home, or rather they want to see the HGTV version of themselves in your home, and for you to get out of the way.
2. Homeowners might want to consider a bridge loan. Most sellers think that their local bank will fund an equity loan, and then sell. However, you can't take an out equity loan while your house is on the market. That would come up during an appraisal, and squash any deal that might be of process. A bridge loan allows you to pay off the balance of the existing mortgage, and cash out up to 80% of the value of your current home towards the purchase of the second home. This is a good idea if you are downsizing to less expensive digs that frees you to make a non-contingent offer in a competitive market.
Shaun Higgins of AMEC Mortgage says that it’s an interest only payment, and in this market most people don’t even get to make a payment because their house sells quickly. Shaun gives an example of a couple who owns their home for 15 years that was purchased for $150,000. That's home now has a market value of 300,000. They have lots of equity, and can use a loan up to $240,000 to secure the next home. When their home sells, they pay off that loan. Your scenario will be different, it is unique to you. Give my good buddy Shaun a call at 952 567 2781to see if a bridge loan would work for your next home.