To have a successful contingency sale, you must know what your home is worth, devise a plan with your lender to purchase your secondary property, and then search for a new home.
If you’re thinking about conducting a contingency sale, what’s the right way to do it?
Before we discuss the ideal strategy for this type of transaction, let's first take a look at what a contingency sale is. A contingency sale is when you need to sell your home in order to buy a new home. A decade ago, we weren’t doing any contingency sales. Back then, we were in more of an institutional market and people didn’t have an opportunity to sell their home and find a replacement home because banks wouldn’t allow it. Prior to that, contingency sales were also tough to do because the market was moving so fast.
Before those two time periods, contingency sales were more common. That’s why if you’re thinking about doing a contingency sale, who you work with matters more than ever. There are Realtors out there who don’t have any experience dealing with contingency sales or are just flat-out scared to walk you through the process.
We, on the other hand, do them on a daily basis, and there are three important steps to a contingency sale:
1. Know what your home is worth. You have to know what your home is worth, what it will sell for, how long the sale will take, and what you’ll net from the proceeds after you’ve paid off all the items that come with the cost of the sale. If you have a good Realtor, they’ll be able to forecast that for you upfront, so you can take that information and move onto the second part of the process.
2. Devise a plan with your lender to purchase your secondary property. Here, you’ll figure out what you qualify for, what your debt-to-income ratio is, what your monthly payment will be, etc. After that, you’ll have a number to work with in relation to how long it would take your home to sell and what you’ll earn from its proceeds.
3. Search for your new home. You shouldn’t list your home first and then go through this process—you’ll really be cutting the legs out from underneath yourself if you do. You also shouldn’t make any offers on any properties if you still need to sell your home. Sellers likely won’t take your offer seriously because there’s no certainty behind it.
The right Realtor can help you with these moving parts. For example, we once had a client who tried doing a contingency sale before meeting us. Of course, they fell in love with their dream home first, made an offer on it, and only then wanted to sell their original home. They ended up losing out on their dream home to another buyer who already had their original home in escrow. After that, they were stuck. They didn’t know what to do because their Realtor didn’t navigate the process the right way and steer them toward a successful transaction. Essentially, they had to go backward.
That’s when they met me at an open house. They loved our marketing, so we laid out a gameplan and walked them through the process I just described above. We listed their home, got it into escrow, found their next dream home, and closed both deals within 45 days.
If you have any more questions about how to conduct a contingency sale or you’re thinking about doing one, don’t hesitate to reach out to me so we can talk about your real estate goals. I’d love to help you.