In an ideal situation, you put your home on the market, an interested party makes an offer, you accept the offer and the deal is done. Unfortunately, the real estate world is much more complex than that, and oftentimes, buyers will specify “contingencies.”
Contingencies are provisions in the real estate contract that require the seller to complete certain acts before the contract becomes binding. Contingencies are common, but does that mean you should accept a contingent offer? The Mortgage Reports explains when it is a good idea to accept a contingent offer, and when it is not.
When and when not to accept a contingent offer
Contingencies come in all shapes and sizes, and whether or not you should accept one depends on the unique circumstances and facts of the transaction. As an example, the publication states that a contingency that involves limiting the buyer’s interest-rate exposure to prevailing market rates could work for both the buyer and seller. In this case, it may not hurt to agree to the buyers’ terms.
However, say the buyer wants you to agree to the sale without providing any pre-approval verification or a sizeable down payment. In the offer, the buyer also states that the inspection must be “satisfactory.” This type of contingency can cost you if you accept, as it means you must take your home off the market without any guarantee that the interested party will purchase it. Also, the term “satisfactory” is vague, and if you accept the contingent offer, you may have to legally perform a whole bunch of unnecessary repairs to bring the home up to the buyer’s standards.
Always ask for earnest money
If you are willing to accept an offer with contingencies, ask for earnest money. Earnest money is money the buyer pays you as a promise that, should you follow through with the conditions of the contract, he or she will close the sale. If you keep your end of the deal but the buyer does not, you get to keep the money.