Among repeat home buyers, an estimated 49% rely on the funds from their current home to purchase a new one.[1] But how do you buy a new home without having sold your old one?
There are several options, but the most common is adding a home sale contingency to your offer — essentially giving you time to sell and collect the funds from your current house or walk away from the contract if you don't find a buyer before closing day.
Although home sale contingencies are included in an estimated 20% of real estate contracts,[2] they're complicated affairs that present risks for both buyers and sellers.
Read on to learn how home sale contingencies work, the pros and cons of using them, and alternatives that can help you make a contingency-free offer on a new house without taking on undue risk if your current home doesn't sell.
What is a home sale contingency?
Many buyers will put a contingency clause in their offer, which stipulates they'll only commit to buying the new house if their current home sells.
If you're buying, this clause helps protect you from carrying two mortgages at the same time — if you don't find a buyer within a specified closing window (typically 30-60 days), the real estate purchase agreement is voided.
That said, in competitive real estate markets, where there's a high demand among buyers for a limited amount of inventory, this kind of contingency could actually make it harder to get your offer accepted.
"From a seller's perspective, contingencies understandably make the deal feel less certain, says Ryan Fitzgerald, realtor and owner of Raleigh Realty. He recalls a recent buyer who, after making a contingent offer on a house, had trouble selling due to unforeseen repair costs cropping up during the home inspection.
When a buyer isn't able to get their old home sold before the closing date, sellers often have to start over with a different buyer.
Because of sellers' reluctance to accept offers that could fall through at the last minute, 51% of agents recommend buyers use alternative solutions like buy-before-you-sell programs and rental periods instead of a home sale contingency.[3]
How does a home sale contingency work?
There are two types of home sale contingencies, each with slight variations in how they work.
Settlement ContingencyIf a buyer has already listed their existing home, has accepted an offer, and is just waiting to close, a settlement contingency may be used. The settlement contingency protects the buyer in the unlikely case that their current home sale falls through. With this option, the seller is normally prohibited from continuing to market the property or accept any other offers. If the buyer's previous home sale does go through, the contract stays valid. If it doesn't, the contract is terminated or modified. Sale and Settlement ContingencyA sale and settlement contingency is typically used if the buyer has not yet put their house on the market but wants to put in an offer on a new home. It stipulates that a buyer must sell and settle his or her existing home before the purchase of the new home goes through. "This type of contingency is where the risk becomes apparent for the seller," says Marshall Golub, COO at HedgeStone Business Advisors. "Since there is no guarantee that the buyer's existing home will sell in the agreed upon time frame, the seller could very well have wasted their time and unnecessarily lengthened the time their property is on the market if the buyer is unable to find a buyer." A kick-out clause allows a seller to continue marketing their home during the contingency period and gives the buyer first right of refusal if another offer is made. If a seller gets another offer, the kickout clause gives the initial buyer a 72-hour window to:
"Such a clause will put the seller's mind at ease since they could still continue showing their home and accepting offers, giving them some flexibility and assurance should the agreement with the buyer falls through," says Golub. "It is also a win-win situation for the buyer since a kick-out clause says that should the seller get a more promising offer on their house, they'd have to let the buyer know before accepting the deal." |
Home sale contingency pros and cons for buyers
Pros
- It protects buyers from having to carry two mortgages at once if the buyer’s current home doesn't sell.
- It ensures buyers have a secured home to move into once they sell their current home.
- It provides buyers with more time to sell their existing home.
Cons
- Buyers could be subject to a kickout clause or risk losing their earnest money.
- The buyer’s offer may be less desirable to sellers.
- The buyer may have to sweeten their offer to get it accepted by a seller.
A home sale contingency can give you peace of mind by not owning two homes at once, safeguarding you from the financial burden of carrying two mortgages, utilities, and more. As a result, you don’t risk overextending your budget or encountering financial strain.
Scott Beloian, broker and owner of Westcoe Realtors, finds home sale contingencies are especially helpful when families are upgrading to a larger home. “One client needed the proceeds from their current home to afford the down payment on a new one in a preferred school district,” states Beloian. “This contingency ensures they are not financially overextended, but it can delay the process.”
A home sale contingency also provides buyers with additional time to strategically market their home and ensure they have a secured place to move into once they sell their existing house. As a result, buyers may feel less rushed or pressured to make hasty decisions, giving them space to make more strategic decisions when selling their home and buying a new one.
However, adding this contingency may make your offer less desirable to the seller. The seller may opt to accept a different offer with no strings attached or expect to be compensated for this extra headache by a higher offer amount from you. Additionally, you may be subject to a kickout clause, causing you to either waive your contingency or risk losing the property and your earnest money.
Beloian recommends buyers carefully evaluate their market’s competitiveness before opting for a home sale contingency. “In a seller’s market, contingent offers may be passed over for more straightforward deals,” he warns.
Home sale contingency pros and cons for sellers
Pros
- Sellers can add a kickout clause allowing them to accept a better offer.
- Being open to a home sale contingency can increase the attractiveness of their property in a buyer's market.
Cons
- If the buyer's home doesn't sell in the specified time frame, they can cancel the deal and get their earnest money back.
- The seller’s home will be listed as “under contract,” increasing the risk that other potential buyers will overlook the listing or sellers will miss out on potentially higher offers.
- It can lengthen the amount of time the seller’s home is on the market.
If a buyer makes an offer with a home sale contingency, sellers will want to work closely with their real estate agent to consider their best move. Accepting or rejecting the offer may depend on how long your home has been on the market, the average time it takes to sell a home in your area, the listing price of the buyer's home, or if the buyer’s home is even on the market yet.
“Taking on a home sale contingency can be a real risk for sellers, especially in hot housing markets,” states Eric Bramlett, a realtor and owner of Bramlett Real Estate. “During that contingency period, multiple backup offers may come in and the seller could lose out on those potentially higher bids.”
Sellers should also take into consideration how the contingency can impact the time it takes to sell their home. Bramlett states that “while it only delays closing in theory, the reality is, it can leave a home in limbo for months.”
Additionally, sellers should be aware that their home may show as "under contract" on its listing, meaning other potential buyers will probably steer clear. They don't want to waste their time with a property they see as already sold.
Sellers accepting a home sale contingency should make sure to add time limits to any agreements to prevent waiting around forever for the potential buyer to sell their home. Golub also recommends sellers “include a kick-out clause since this will put the seller’s mind at ease, allowing them to continue showing their home and accepting offers.”
How to make a home sale contingency work for you
Successfully incorporating a home sale contingency can be challenging. But, with the right tactics, both buyers and sellers can benefit from this strategy — especially if they understant how to effectively manage and negotiate the contingency terms.
Here are some ways buyers can improve their contingent offer without increasing the offer price.
Offer a higher earnest money deposit or other financial incentive
Offering a higher earnest money deposit or other financial reward shows that the buyer is serious and committed. This can ease the seller’s concerns and make them more likely to accept the buyer’s offer, despite the risks.
In addition to increasing the earnest money, buyers can also offer to pay some of the buyer's closing costs, advises Beloian, who's helped clients use this approach to make their contingent offers more attractive.
“At the end of the day, open communication and creative solutions usually lead to a good outcome, keeping both parties’ interests at heart,” states Bramlett.
Buyers can consult with their agent to find other creative ways to sweeten the deal financially without increasing the sale price.
Establish shorter contingency periods
Reducing the contingency period can also alleviate a seller’s concerns about potential delays or uncertainties involving the contingency.
A shorter time frame shows that the buyer is confident about selling their home and being proactive with their marketing.
This approach can be especially helpful for buyers whose home is already under contract. However, buyers will want to consult with their real estate agent to ensure they’re setting a realistic timeframe.
Show proof of active marketing
Beloian also recommends that buyers show proof of active marketing to reduce the perceived risk for the seller. This approach may include showing that the buyer’s home is listed at a competitive price, has professional photos, and is being promoted through multiple real estate channels.
Buyers can also share if their home is generating interest and showings to reassure the seller that the home will likely sell soon. Providing regular marketing or offer updates can further reinforce to the seller that the home is likely to be sold, reducing their risk.
Waive other contingencies
To sweeten their offer, buyers could consider waiving the appraisal or inspection contingency. “This approach has worked well in my market, signaling strong confidence in the home’s value," says Ryan Fitzgerald.
Reducing the number of contingencies can certainly make a buyer’s offer seem less risky to sellers. In fact, 21% of agents responding to a survey by Homelight reported too many contingencies as the number one reason buyer’s offers weren’t accepted.[4]
But buyers should proceed cautiously with this approach, as you leave yourself open to facing unexpected repairs and expenses. For example, associate real estate broker Colten Claus notes, “waiving the appraisal contingency makes your offer stronger but this contingency ensures you are not overpaying for the property.”
Other ways to sell your house and buy a new one
If you're faced with needing the funds from your current house to purchase a new one — but are nervous about how quickly your home will sell, there are a few other options worth investigating:
Look into buy before you sell programs
An increasingly popular way to buy a house before you sell is to use a buy-before-you-sell service. These programs, also called trade-in services, front you a portion of your equity to purchase a new home, which you pay back once your existing home sells. This approach essentially turns your offer into cash, which is far more appealing to sellers than an offer contingent on your home sale.
But there are a couple of downsides to consider. Service fees for these types of programs can exceed 2% of your home sale price. Some companies also charge rent on your new home until your old one sells. Plus, buyers may have to pay additional closing costs or loan origination fees.
Often these fees can be deducted from the profits from your existing home sale, rather than paid upfront. Plus, several companies allow you to use a portion of your home equity advance to make improvements to your house prior to listing, which can result in a higher sale price and help you make up for some of the cost.
Before signing up, buyers should review the different programs to find the one best for their situation. Knock, Orchard, and Homeward are all legitimate buy-before-you-sell companies that may work for some buyers.
Get a cash offer with a flexible closing date
Another option buyers can consider is selling their current home to a cash home-buying company or investor. Selling to a cash buyer allows you to sell your existing home quickly. Plus, many companies that buy houses for cash allow for a flexible closing date, so you can coordinate with the purchase timeline of your new home. This can minimize the need for temporary housing or storage.
However, the downside is that cash buyers’ offers are typically below fair market value, which can reduce the overall profit from your existing home sale. You’ll also want to research and vet "we buy houses" companies carefully to ensure they can deliver on their promise and are legitimate.
Some top options for pursuing cash offers include comparison services like Clever Offers, iBuyers like Opendoor, and companies like Homeward that offer a couple of different buy-before-you-sell options.
Get a bridge loan
Like buy-before-you-sell programs, bridge loans "bridge" the gap between the purchase of a new home and sale of an old one.
These equity-based loans can cover cash for a down payment on a new home and overlapping mortgage payments while your hold house sells — removing the need for a home sale contingency.
“Bridge loans allow sellers to move into their new home promptly and sell the old one at a relaxed pace, using the proceeds to pay off the bridge loan,” shares Beloian.
But there are downsides. Bridge loans have a short repayment period, typically within six months to a year. Additionally, these loans have higher interest rates than traditional mortgage loans. For instance, mortgage vendor Vaster reports current bridge loan rates as between 9.5% to 12%, although the rates can vary by location.[5]
If you're thinking of going this route, get get pre-approved before getting your 72-hour notice so you're not scrambling at the last minute.
Take out a home equity line of credit (HELOC)
Home equity lines of credit (HELOCs) is a revolving line of credit based on your home’s equity — the difference between your home value and what you owe on your mortgage).
With a HELOC, you can leverage your home's equity to secure the funds needed for a down payment on a new home (or the full purchase price) — often for a lower rate than other types of credit.
However, a HELOC can’t be taken out after a homeowner puts their home on the market. Additionally, HELOCs have variable interest rates, so the interest rate can change. Also, the home is collateral, so if the amount borrowed isn’t repaid, you can lose your home.
As with a bridge loan, if this is an option for you, apply for a HELOC early (and before listing your home). If you're approved, you can transfer funds in order to purchase the new home.
Combine a low down payment with mortgage recasting
If you don't have a large stash of money for a down payment but can afford to carry two mortgages for a short period of time, combining a low down payment with a mortgage recast on your new home may be an option.
In this scenario, you'll secure a mortgage on the new home, allowing you to close without the contingency of selling your old one. But instead of putting down the standard 20% on your new home, you'll agree to a higher mortgage rate in exchange for a lower down payment. This lets you keep more cash around to potentially cover two mortgages while you wait for your home to sell.
After selling your original home, you'll recast the mortgage to a lower monthly payment by paying down a large percentage of the principal with the equity from your home sale. The lender calculates the new monthly payment using the lower principal balance, reducing your monthly costs. The interest rate and loan terms will stay the same.
Be aware that not all lenders allow recasting. Also, government-backed loans like FHA don’t qualify for recasting. If you do recast, there will likely be some fees, although these are usually only a few hundred dollars.
Arrange for an extended closing date or lease back on your current home sale
If you sell your current home before you buy, you may need to find a way to buy yourself more time to find and close on a new house. One option is to arrange for an extended closing date. This involves negotiating a longer amount of time before your home’s sale is completed. This gives you more time to close on a new place.
A lease-back agreement, or rent-back agreement, lets you sell your existing home and continue living in it as a tenant for an agreed-upon timeframe after the sale. You’ll essentially be paying rent to the new owner.
These approaches can provide you with flexibility, allowing you to avoid finding temporary housing and moving multiple times. However, buyers who need to move quickly may not be able to agree to these arrangements, potentially limiting your pool of interested buyers.
Sell and move short-term
Another option is to sell your existing home and move into a short-term housing solution, like an extended stay hotel or a rental, while looking for a new home. You can take your time looking for a new home and avoid the home sale contingency, which can strengthen your offer.
When buying and selling a house at the same time, “be prepared to extend the closing if issues come up, such as unforeseen repairs on your current house or an appraisal coming in low," recommends Eric Bramlett. "In today’s market, that could mean a month or more of temporary living between homes.”
However, finding suitable short-term housing that fits your budget can be a challenge. You’ll also need to move twice and potentially pay to store belongings until you find a new place.
Don't go it alone
Home sale contingencies come with their own set of rules and challenges. We recommend finding an experienced agent to help you navigate the complicated contracts, paperwork, and negotiations involved.
If you work with a Clever Partner Agent as a home seller, you'll benefit from pre-negotiated commission rates with top agents across the country — saving you up to 50% in listing fees.
As a home buyer in a qualifying state, you may also be eligible for cash back at closing.
Need a great agent? Get in touch to connect with top-rated realtors in your area.
FAQs about buying a house contingent on selling yours
Can you make an offer contingent on selling your house?
Yes. A home sale contingency lets you buy the new home as long as you sell your existing home within the specified amount of time. But, this contingency is risky for sellers, so sellers may look for offers without this contingency.
How can I make my offer more attractive with a home sale contingency?
Buyers can make their offers more attractive by providing the seller with additional incentives that fit their needs, like offering a higher earnest money deposit or setting a shorter contingency period. Additionally, you can reduce sellers’ perceived risk by showing proof that you’re actively marketing your home and have it competitively priced.
Can I waive the home sale contingency?
Yes. Instead of asking for a home sale contingency, you can explore other options to help you buy and sell, such as using a bridge loan or a buy-before-you-sell service.
Why don't sellers like contingent offers?
Contingent offers, like a home sale contingency, can add uncertainty, potential delays, and even missing out on other better offers. Non-contingent offers provide sellers with a more straightforward and faster sale process, making these offers more appealing.
Can a seller accept another offer while contingent?
When a contingency (particularly a home sale contingency) includes a kick-out clause, it allows the seller to continue marketing their home and accept another offer from a new buyer. The original buyer usually has about 72 hours to decide whether they want to remove the home sale contingency, renegotiate a better deal with the seller, or end the contract and lose the home.
