Should I Accept an Offer with Contingency?

Question

I have had a property I am flipping on the market for about 110 days.  Originally priced it too high and it bit me in the butt.  Have since dropped the price to align with the market and have had two contracts, each falling apart for different reasons.  Just received an offer last night, but has a contingency tied to the sale of their existing home.  The buyer just put their home on the market 8 days ago.  It looks "ok" but not a home you would think would sell immediately (priced reasonably).  If I can't close by July 31st I will need to refi the home from my hard money loan.  And I would need time to pull the loan together.  My buyer is suggesting they can close by July 5th.  But they don't even have a contract.  Should I try to work with them (e.g. add a bump clause) or decline the offer?

Russell Brazil · Answer

Getting a 30 day extension from your hard money lender shouldnt be that hard either instead of doing a total refi out of that loan.

I would accept it and keep a kick out clause, the ability to accept other offers.

Evan Wiesner · Answer

I hear you with regards to pricing high. Our position is to always price it lower and more often than you would think you'll sell it for over list faster. It's amazing, we've done over 2,000 flips in 25 states and this almost always makes more money than shooting for the higher price. I know that wasn't the question, but I thought I would offer it up.

As for the contingency, counter with a first right of refusal instead. If you get an acceptable offer you submit an addendum to them giving them 24 hours to remove the contingency or the contract is terminated. You get to keep marketing the property and they can proceed towards closing knowing they have a chance to keep the home. It's a win-win as long as both parties understand the process once an offer is made.

Good luck Tony!

John O. · Answer

I assume that the buyer doesn't have the down payment for your property or can't carry two mortgages at the same time.  This could be resolved with a concurrent closing, you close both escrows at the exact same time.  I did this with my primary residence in November of last year.

I would suggest to put a clause in the contract that they have until June 26th to open escrow on their house.

Also, use the same escrow officer for the concurrent closing...

JD Martin · Answer

I would do just as Russell and Evan have mentioned - accept the offer with the escape clause. You have no obligation to depend solely on the ability of another party to sell their house.

Mike Cumbie · Answer

@Tony Castronovo and @Jenell Poncabare

I can't speak to Texas or California, but here I would not change it from active and would continue to market it. Per our MLS rules for a property in 'Active"

Property available to be shown, no signed contract exists, with the exception of a contract with the contingency of a property to sell, to be identified in the showing Instructions as “Contingent upon sale of a property”.

Jenell Poncabare · Answer

@Mike Cumbie Thanks for the comment. I understand what you are saying and in theory it is a good idea, however I didn't like the terms of the rest of their offer. I thought the price was too low and they haven't even technically listed their house for sale yet. My broker called their agent and told them once they get their house under contract we would be willing to look at an offer from them.  @Tony Castronovo That is precisely the problem in my market. The status will have to be changed and unfortunately agents in my area will not show the home if it is not listed as "active".

Tony Castronovo · Answer

@Mike Cumbie I think the problem is that you have to change the status. If it's not "active" most agents won't show. May not even come up in a search if the have filters on.

Mike Cumbie · Answer

Hi @Jenell Poncabare,

I don't recommend a seller reject a contingent offer if they like the rest of the terms. Reason being is that you have the option to "bump" if you find something better (At least with our contract here). So if you accepted an offer of 200K for a house with a contingency. Then a week later received an offer of 205K without, you simply send a "Bump notice" to the first people that says "Either remove your contingency or your offer is dead in 24 hours". You get one on the hook and get to keep fishing.

Just my 2 cents and good luck!

Jason Hirko · Answer

@Tony Castronovo that is great you were able to do that. I had a house not to long ago that I couldn't wait to get rid of. I got an offer from a guy who had put two other houses in the neighborhood under contract and then backed out. I knew it was bad, but I accepted his offer, and after my place sat off market for nearly three months with extension after extension, he backed out. Who knows what could have happened in those month!

Should I Accept an Offer with Contingency?

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