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Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

What is a Contingent Offer on a property in NYC real estate?

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When planning to purchase an apartment or home in NYC, you will hear about contingencies from your broker and your real estate attorney. A contingent offer on the house is an offer where the buyer discloses in advance potential contract contingencies. Both buyers and sellers in real estate are familiar with contingent offers. How often do contingent offers fall through?

Although typical, with contingent offers come risks for both parties. In the following article, we discuss everything you’ll need to know about contingent offers on houses, including:

home sale contingency

1. Non-Contingent Offer: what is that?

A non-contingent offer on the house is an offer on a unit made without any deal contingency. An example is an all-cash offer, and it can also be an offer withreal estate contract financing that doesn’t have any other form of real estate contingency. Contingencies protect buyers.

An offer with financing that is non-contingent is not less risky for the buyer. Indeed, they will have to buy the property regardless of the financing aspect is an excellent option if the buyer has the cash anyway.

In a non-contingent deal,  there are no protections for the buyer “in contract” if he cannot secure financing. Buyers who place a non-contingent offer with financing know they can secure the money to buy all cash if they cannot.

Those buyers have enough liquidity available to buy a home all cash. However, they prefer to benefit from a low-interest rate mortgage. Sometimes they can benefit from the Seller’s financing.

Another scenario is when buyers have a wealthy family and can borrow the cash to close quickly if the financing does not materialize.

2. What is a Contingent Offer on a property?

A buyer will put in a contingent offer on a house when they require some conditions to meet before closing the sale.

The buyer says I want to purchase this home but have some concerns. These concerns are typically predictable and fall into one of four categories. You must become familiar with the different types of contingencies and how they can impact the deal.

  • Appraisal Contingencies

The buyer will offer a home contingent on an appraisal to ensure the home is worth as much as they agreed to pay. AContingent Offer on a house professional home appraisal will determine the home’s fair market value. Then, the buyer will compare this number to the contract purchase price.

Therefore, a successful appraisal will evaluate whether the home purchase price is fair. If the home appraisal determines the home’s fair market value is much less than the asking price, the buyer may back out of the deal or renegotiate.

  • Home Inspection Contingencies

Home inspection contingencies are common. The buyer must inspect the home and go into the closing knowing the exact condition of what they agree to buy. Typically, a buyer will hire a home inspector to alert him of any existing or potential structural or aesthetic damages.

If the inspector flags any significant issues, the buyer can negotiate the asking price or entirely back out of the deal. This depends on the severity of the problems.

  • Mortgage Approval Contingencies

Another protection for the buyer is the mortgage contingency. This is when the deal hinges on whether or not the buyer can secure financing from acontingent offer on a home lender. This may come up when a buyer finds the perfect place and wants to put in an offer before seeing a mortgage lender willing to give them a mortgage.

If the buyer cannot find a lender after putting down this contingent offer on the house, they can legally walk away from the deal and take their 10% deposit with them on the way out.

An offer with a mortgage contingency is a significant risk for a seller. Sellers need assurance that prospective buyers come to the deal with the necessary funds. Also, they should look for buyers pre-approved for a mortgage.

  • Hubbard Contingency or sale contingency

A sale or Hubbard contingency allows a buyer to sell his existing home before being forced to walk away or waive their right to walk awaynew home contract in new york from their new purchase. Homebuyers who need to sell their home first won’t face the uncertainty of whether they’ll use the old house’s proceeds in time to buy the new property.

Buyers sometimes need the money from their home sale to buy the new one. If they are in contract on their new home, the pressure increases. But they cannot find a buyer for their current one. They risk losing their 10% earnest money if they cannot find the funds to complete the purchase.

These sale contingency offers are significantly less attractive to sellers than a comparable non-contingent offer, and this is not something they can control. Sellers have no information on how likely the buyer’s existing unit may sell and the timing.

3. What Should Buyers Know about making a Contingent real estate Offer?

Buyers need to have a clear idea of their specific goals and timelines.

The offers discussed above offer buyers certain protections but have associated risks. Say a buyer comes across a home they love, but the appraisal is lower than the asking price. However, the seller may not be willing to negotiate down, and you could lose the sale.

It’s also risky for a buyer to enter the market without pre-approval. If you put down an offer and cannot secure financing, you can lose the sale if another pre-approved buyer comes along. This is why getting pre-approved before shopping is always a good idea.

4. Should a Seller Accept a Contingent real estate Offer?

The answer is yes, but only if you have no other offers. However, if you have multiple offers, you should encourage contingent buyers to improve theirnew home contract in new york terms by increasing the purchase price and removing their contingencies. Another technique is to accept multiple offers and even send out numerous sales contracts for negotiation in parallel. An accepted bid is not binding until fully executed contracts.

The Seller is the last to sign when the attorneys circulate the signature pages. The Seller is not bound to an accepted offer until he counter-signs the pending sales contract.

Sellers should understand contingent offers and that they typically are for the buyer’s benefit. However, sellers should also be aware of the market and its situation.
If a seller is in a buyer’s market and has been there while needing to close a deal, accepting a contingent offer may be the Seller’s best bet. It’s also crucial for the Seller to anticipate those offers with the routine home inspection and not let this kill a potential deal.

5. How Often Do Mortgage Contingent sales Fall Through?

Once in contract, contingent mortgage deals very rarely fall through. Remember, the financing contingency only gives the home buyer 30 to 45 days to exitfor sale vs for rent - Contingent Offer the real estate transaction if they can’t secure a bank loan.Sometimes, the buyer needs longer to obtain a commitment letter. The buyer must decide between canceling the deal or taking the risk of waiving the mortgage contingency by staying in the deal.We also see sellers willing to extend the mortgage contingency period if buyers act in good faith, especially in Covid times. At that point, buyers frequently wave the financing contingency since they want to purchase the unit.Besides, if the buyer waives their financing contingency, he is unlikely to default on the contract and does not want to lose his 10% deposit. Therefore, buyers will find some way to get the money, usually from family.How often does a contingent real estate offer fall through? Offers with a sale contingency are much more likely to fall through. The deal is contingent and pending on the buyer’s ability to secure another buyer for their own home. In these cases, the Seller will reach out to the backup offer.Therefore, there are a lot of moving parts with a Hubbard Contingency. As a result, these deals are more likely to come apart.

6. Get Your Contingent Offer Accepted by the Seller

It’s easy: bid on the unit competitively, especially in a bidding war! Also, tell the Seller you intend to sign a contract within five days. If the Seller priced his home right and receives multiple offers, then submit an offer at the listing price. State you intend to sign a contract within five business days.A seller is usually hesitant to accept a contingent offer and would much rather wait for a non-contingent one. This is why showing that you’re pretty serious if you ask for a contingency is essential.

7. How Can You Beat a Contingent Offer

Make an all-cash offer bid at the exact purchase price (or a non-contingent bid where you have the option to finance).
Your bid will be much morehouse in nyc - contingent offer attractive, and the Seller will accept your proposal vs. the contingent real estate offer.
If you have a good broker, he must get some color from the Seller’s real estate agent about the competing offer(s). If you find out that you are competing against a contingent mortgage offer, you could bid lower and still get your offer accepted.

Written By: Kali Krownapple

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