Contingencies in real estate contracts are safeguards for both buyer and seller that set conditions on the purchase, permitting both to walk away without penalty when the criteria agreed to have not come to fruition.
This means that the builder may agree to have you select a floor plan and home site and complete a purchase agreement wholly dependent (contingent) upon the successful sale and closing of another property -- in this case, your current home. For that privilege, however, the builder has the right to continue to market the home site you have selected to other buyers who do not have contingencies.
If the builder does receive an offer to purchase the home site you selected by someone who does not have a house to sell, the builder will customarily utilize a clause in your purchase agreement that gives you a certain length of time (usually 72 hours) to decide if you can remove your contingency -- going ahead with the purchase without waiting to sell your home. This is customarily referred to as the “first right of refusal,” giving you priority over any other contingent buyer.
A Realtor® can show you a price range for marketing your home based on homes that have sold recently and closed escrow, are currently on the market, and compare failed (expired) listings in your area. The comparative information you will be given should be as close to the size, age, quality and amenities to yours as possible. One of the most important factors to consider beyond pricing, however, is the average “days-on-market” of homes in your neighborhood.
You may face a dilemma if your new home will be completed well before the possible 90-180 day sale timeframe found routinely in today’s market -- the prospect of handling more than one mortgage payment.
You can speak to your loan representative about the possibility of a short-term loan to cover this reality, payable in escrow when your old house closes, offering you the ability to get into your new one. Or, you can plan to squirrel away a few months’ house payments well ahead of time just in case this happens.
If the new house you are purchasing is not due to have its final nail hammered in place until seven or eight months down the road and your current house sells within a shorter timeframe, you’ll either need to think about interim housing, along with the prospect of storing of some or all of your belongings until the new house is ready to occupy. Or, you may try to negotiate a “rent-back” from the new owner of your old home.
The most important thing to be prepared for when moving from one property to another is the ability to be flexible. Have a contingency plan of your own, making arrangements to stay with relatives for a few months or finding a short-term apartment rental if these circumstances arise.
Dena Kouremetis is a veteran freelance real estate consumer journalist and California real estate broker. She may be reached by email at REritr@aol.com.
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