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Posted in: Selling a home

How sellers can benefit from reverse contingencies

reverse contingencies

Key insights

  • Sellers may find themselves in a tight spot if they sell their property but haven’t yet found a new home to purchase.
  • To avoid this anxiety, sellers may consider adding a reverse contingency to their purchase agreement.
  • In a reverse contingency, the seller adds a clause saying that the home’s sale is contingent on their purchase of a new property.

Worried about being temporarily without a turf during the time between selling your current home and buying a new one? Here’s how using a reverse contingency can help certain sellers ease their mind as they list their home for sale.

What is a reverse contingency?

When there’s a shortage of homes for sale, sellers typically rejoice. After all, the simple dynamics of supply and demand dictate that in a low-inventory market, sellers can benefit from shorter time on the market and increased sales prices.

Of course, sellers who need to buy another home have the same disadvantage as every other buyer as they scan the market for homes in their preferred location and budget. And this can cause anxiety for sellers who aren’t sure they’ll be able to find an acceptable new home before their current home closes.

That’s where a creative option, known as a “reverse contingency,” can come into play. In a reverse contingency, sellers insert a clause into the purchase agreement that makes their home sale contingent on finding another home to buy. This is the opposite of a buyer’s contingency clause, which makes a home sale contingent on whether the buyer can sell their home.

When should sellers use a reverse contingency?

Let’s say you receive a very attractive offer on your home, but you haven’t yet found another one to buy. In this case, consider adding a reverse contingency clause into your purchase agreement.

Your REALTOR® can help you with the exact language, but in essence, the reverse contingency gives you a period of time to try to find a new home before you are legally bound to sell your home. The point is to buy you time but to get these buyers (and their very attractive offer) under contract while you look.

Then, if you find a home during that period that suits your needs and you are able to come to terms with the seller, your contingency will be removed and you’ll move towards closing the sale of your own home. If you don’t find a home during that time, you can:

  • Cancel the purchase agreement and walk away from the deal.
  • Negotiate a longer contingency if the buyer is willing.
  • Negotiate for a longer path to closing, so the sale moves forward and you still have time to continue searching.

Note: When making the decision to pursue a reverse contingency, don’t rely on stats or news stories about the market as a whole. Real estate is hyperlocal and so is buyer demand. Your Realtor can walk you through the interest for homes like yours and together, you can determine if a reverse contingency is the right call.

An alternative option: Transitional housing

If a reverse contingency doesn’t feel right, another option is to arrange short-term or transitional housing, which allows you to sell in a strong market while taking the time you need to find — or build — your perfect house.

Many people report that moving to a short-term residence reduces the worry and stress of rushing into a buying decision. Transitional housing allows you to take your time, do your research and find the perfect home. There are many interim living arrangements and options to consider if your current home sells before you purchase a new property.

Depending on the length of your stay and the size of your family, common transitional housing options might include:

  • Renting a single family house or townhome with a short-term rental.
  • Contracting with your buyers to rent your home back from them until your new home is ready for occupancy.
  • Renting an apartment month-to-month or on short-term rental.
  • Contracting with an extended stay hotel or inn.
  • Staying with friends or family who have extra space or a vacant home.

The right team

Selling a home can be stressful. But with a little time, creativity and the right team in place, you can find your temporary living arrangement while gaining the flexibility and freedom needed to find your ideal home.

If you’re ready to make your move, contact Edina Realty or your agent today. Plus, follow #SellerInsights on Facebook, Instagram, Twitter and YouTube to get more expert advice and insights.

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Status Definitions

For sale: Properties which are available for showings and purchase

Active contingent: Properties which are available for showing but are under contract with another buyer

Pending: Properties which are under contract with a buyer and are no longer available for showings

Sold: Properties on which the sale has closed.

Coming soon: Properties which will be on the market soon and are not available for showings.

Contingent and Pending statuses may not be available for all listings