Buying a new home before selling your current one can be risky. However, making a ‘contingent offer’ may be possible. This offer depends on another event occurring first, such as the sale of your property.
In the blog below, we’ve covered everything you need to know about making contingent offers and how it can work when buying and selling properties. Keep reading for all the details you need.
What is a Contingent Offer?
A contingent offer is a conditional offer made on a property dependent on an uncertain event occurring first. Most commonly, this involves the buyer needing to sell their property before being able to proceed with the purchase.
The offer will specify that it is contingent upon the sale of the buyer’s home. This gives the buyer time to market and sell their property while putting an offer on their desired new home. If the buyer’s home sells within the specified time frame, the contingent offer on the new house becomes binding.
Risks of Contingent Offers
While contingent offers can be a strategic move for buyers, they also come with risks. Buyers may lose the new home if they can’t sell their property quickly enough. Meanwhile, the seller must keep the house off the market until the contingency is met. However, contingent offers can help buyers compete in hot housing markets by securing a new home before listing their own.
Timeframe for Contingent Offers
The contingency time frame is a crucial consideration. This is the deadline for the buyer to sell their property and satisfy the contingent offer terms. The buyer will want a reasonable timeframe that gives them enough time to complete the sale.
Meanwhile, the seller will want this period minimised so they are not stuck waiting too long for the deal to progress. Typically, a 4-8 weeks timeframe is reasonable for a buyer to list and sell their home, but you can usually negotiate this.
What is a property chain?
A property chain is a sequence of property purchases reliant on one another. This often occurs when buyers must sell their current home before purchasing a new one. Each link in the chain is a buyer waiting for the sale of the previous home in the sequence to proceed with their purchase.
What is the property chain process?
Property chains begin when one homeowner makes an offer contingent on selling their home. If this seller has also made a contingent offer on another property, this forms a chain. The chain continues growing as each buyer awaits the sale of the previous home in the sequence.
Property chains necessitate all parties to communicate and cooperate. If one link fails, it disrupts the entire chain. This underscores the importance of everyone in the chain, making you feel the significance of your role in the process.
How long are property chains?
The length of a chain can vary significantly. Short chains may just involve two properties—a buyer and a seller. Longer chains can have four or more properties in sequence, as each buyer and seller wait for the previous transactions to complete. Generally, shorter property chains are less likely to fall through.
What happens when a property chain is broken?
It’s important to understand that breaking a property chain can have severe consequences. It can jeopardize all the related transactions down the line, leaving buyers and sellers stranded without a sale or purchase. This risk underscores the importance of everyone in the chain keeping their property in a saleable condition and responding promptly if issues arise. Good communication from estate agents is also vital in ensuring a smooth completion. Understanding these risks can help you navigate property chains with patience and care.
Am I financially responsible for damages if I cause the chain to break down?
In most cases, buyers who back out for no legal reason are not financially liable if it causes a chain to collapse. There would need to be specific damages that the sellers or estate agents can prove resulted directly from the broken chain.
This reassurance should instil a sense of security and confidence in your decision-making process when considering a contingent offer.
However, suppose you withdraw your offer without a valid reason. In that case, you may risk losing your deposit. This covers the sellers’ costs for taking the property off the market. Beyond losing your deposit, sellers must demonstrate financial loss directly attributable to your withdrawal to claim further compensation.
Breaking a chain can cause significant inconvenience and expense for other buyers and sellers. So, you should only make a contingent offer if you are willing to follow through once you sell your property. Communicate promptly if any issues arise to avoid negative impacts on the chain.
7 Reasons to make an offer before you have sold your house
There are advantages to making a contingent offer on your desired new home before selling your current property:
1. Securing the home you want
In competitive markets, desirable homes get snapped up fast. A contingent offer allows you to secure the property while giving you time to sell.
2. Gaining negotiation power
Sellers may accept a lower offer if it is contingent vs. waiting for a higher unconditional offer. This gives you added bargaining power.
3. Selling your home under less pressure
Once you’ve secured your new home, you can focus on prepping and listing your property for sale without an extended closing deadline.
4. Avoiding double moves
If timed right, you can coordinate closing dates and move straight from your old home to the new one. This avoids interim costs and hassle.
5. Testing the market
Making a contingent offer before listing your home gives you insight into the market value of your property.
6. Getting a head start
The buying and selling process takes time. A contingent offer allows you to get the ball rolling on buying your dream home while still living in your current house.
7. Motivation to sell
Having an offer accepted on your new home gives you a solid incentive to get your current house sold as quickly as possible.
A contingent offer can empower buyers if you sell within the timeframe and keep sellers informed. It allows you to take the lead in purchasing your next home.
7 reasons to wait until selling your house before making an offer
On the other hand, there are good reasons to wait until you have sold your present home before purchasing another property:
1. Avoid overpaying on the new home
Once you’ve sold your home, you’ll precisely know your price range for buying. This reduces the risk of overspending.
2. Prevent mortgage problems
Mortgage lenders will want to see that you have sold your current property first. This avoids uncertainties over whether you can secure financing.
3. Reduce pressure and complications
Waiting until you have the cash in hand from the sale of your home means there are fewer contingencies during the conveyancing process.
4. Keep costs down
Paying double mortgages during the buying and selling can become expensive. It’s financially safer to sell first.
5. Complete renovations or repairs
If your present home needs work to maximise its sale value, it is often easier to complete before purchasing another property.
6. Avoid rush decisions
Knowing you have already sold can prevent you from rushing into a purchase just to secure a new home.
7. Simplify moving logistics
Coordinating the purchase, sale, and actual move can be highly stressful and complex. Selling first gives you one less thing to worry about.
The main advantage of waiting to sell your current home first is minimising uncertainties and risks. However, competitive markets could mean losing out on your dream home. So, carefully weigh the pros and cons when deciding what works best for your situation. If you’d like support with offloading a property – for example, selling your flat – click the link to see how we can help.
