The Risks of Not Having a Home Sale Contingency

Although buying a home can be exciting, selling your existing home while buying another can be a cumbersome and frustrating experience if your existing home does not sell as quickly as you anticipated. If you need to coordinate a purchase and sale, your real estate agent or broker may recommend adding a contingency clause to your purchase offer, which releases you from your purchase obligation if you cannot sell your existing home.

Paying Two Mortgages

Failing to include a contingency clause in a real estate purchase offer may obligate you to complete the purchase of the new home, even if you do not have an offer or a pending sale on your existing home. This means that, if your finances and credit qualify you for both the new mortgage and your existing mortgage, you would not be able to back out of the purchase without violating the contract. You would be responsible for paying both mortgages, which could result in financial strain.

Loss of Deposit

A contingency clause typically permits the return of an earnest deposit if you do not sell your home or obtain financing for the new home. An earnest deposit is an amount you pay when making a real estate offer to show that you truly intend to purchase the property. Without a contingency clause in place, you would lose the amount paid to the seller as an earnest deposit if you did not complete the purchase.

Urgency to Sell

Because making an offer on a home without a contingency clause puts you in the position of needing to sell your existing home to avoid losing your deposit or paying two mortgages, you may feel pressed to accept a low offer on your existing home. Accepting a low offer can cause you to lose equity you have built by paying down the principal on your mortgage. It can also leave less money for improvements on your new home.

Considerations

Although a home sale contingency clause protects you as a buyer, a seller may be reluctant to accept an offer containing this clause. If your home does not sell, the owner of the new home will have to start looking for a buyer. He may also view a contingency clause as a sign that you are not confident about your ability to sell your existing property. For these reasons, the seller may choose not to accept your offer, and may instead wait for a buyer who does not need to sell an existing home to complete the purchase.

References

• The Complete Idiot's Guide to Buying and Selling a Home; Shelley O'Hara, Nancy D. Lewis
• Home Buying for Dummies; Eric Tyson, Ray Brown