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Accepting the Contingency
Home owners everywhere know that when buying a new property, they must tap into the equity in their existing real estate in order to access funds used to close on the new transaction. There are various ways to access that equity from bridge loans to home equity lines of credit but sometimes those aren’t the answer. And this isn’t relegated to a primary residence but with any piece of property from raw land to a duplex to a single family home. When accepting an offer on one of your properties, sometimes you will see a “contingency” clause. What’s a contingency clause?
A contingency clause in a real estate contract is an offer that is contingent upon your buyer selling their current property. For instance, say you’re entertaining an offer on a property you own at $200,000 yet the offer states that the buyers can’t close on your contract unless they close on the home they have listed for sale. Should you accept a contingency clause?
The first consideration is the quality of your buyers. Before accepting any offer, make sure they have a letter in their hands from a lender that shows the buyers have applied for a loan, are approved and simply waiting for the right property. Without this evidence, you should take great care accepting an offer without an approval letter.
Second, have your real estate agent take a look at the buyer’s existing real estate. Is the home currently listed? If so, what is the list price? Does your agent think the home is priced fairly and if so, how long will it take for the buyer’s home to sell? Remember, once you accept a contract, your home is temporarily taken off the market and can only accept backup offers.
If the home is aggressively priced and your buyers have been approved for a mortgage, then a contingency clause should be no problem. If either one of these factors is missing, it might be wise to decline the contingency.
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