Sweetening a contingency offer on a house?

[HardDrive]

I'll make a long story short(er).

Wife and I had no immediate plans to buy a house, but we check out the local open houses. We get a tip about a property. We want the place, big time.

We're scrambling to get the financing in order. Looks like it should pan out.

Anyhoo, we currently have a house, big ball of equity in it. Rolling it over as downpayment on the new place......but we gotta sell it first. We would prefer to avoid the bridge loan business (if we could even get one....).

There are a few houses around with contingency offers on them in the area, but most sellers are rejecting them (problem being that folks that already have homes are the only ones who could afford to move up into this area....).

So here is what I was thinking: We make them an offer contigent on the sale of our house. We get the deal done in stone, we own the place as soon as we sell, and we simply don't close until our house sells. This is a terrible offer from the sellers perspective, so I was thinking of sweetening the pot. We will ask them for 3 weeks from the date of acceptance as a grace period, and there after, we will pay them a monthly fee to hold the house. Something solid, $3k+ a month, just for giving us the time to get our property sold. Their house gets sold, and they almost immediately start to see some money for their property.

I'm aware that this leaves us very exposed, but houses in this area are moving, especially the small $800k 'starter homes' (I know, insane). Our place is a bargain in this area.

Is this a stupid idea? Any other suggestions?

We want this house, and we are willing to dish for it. It would not break us to make the payments to the sellers, but I would not want to do it for a year.......

EDIT: I should add that the current owners are gone. They have moved out into a retirement home, and I believe the place is paid off.

[aigel]

I don't think they will go for it. But of course you can try.

$3k / month is a lot less than what the price can go down these days.

George

[911Rob]

Subject to Sale is still "subject"; I wouldn't recommend this tactic at all.

I've been in your shoes.... here's a plan for you?

Put in an offer with a good deposit. Make the cheque payable to the sellers directly, not in trust. (you should disclose in the offer that you have consulted with your legal council the ramifications of releasing the deposit directly to the sellers and not held in trust).

Make the offer "no subjects", so you'll have to do your homework first if required? This is strong! Take a SOLD sticker with you, because when they accept the offer they can put up the Sold sticker. You start the presentation with the offer on the table, a cheque made payable to them directly on the table and the Sold sticker on the table. Confidence, the deal is done. (expect that they'll want a day to think it over though)

Give them their price.

Make the possession date for 6 months (I did mine for 10, but that was a tough one), or as long as you feel possible. Explain that you have a home to sell, but you didn't want to jerk them around with a subject to sale offer; or subject to financing, etc. Your expectations are that you are going to make it work for that date.

You can have a nice little verbal chat about life with the sellers if you know what I mean; let them know what you're doing; but ONLY expect the best.

Then go sell your house. If you are able, you can amend the completion dates to sooner, seller and buyer satisfactorily negotiated dates.

Downside: You don't sell your house in say 4 months.... go meet with the sellers and ask for a 2 month extension to the completion date; maybe increase deposit for extension. They're human, you love the house, etc.; it'll work if you make it work. If they don't agree, you actually own the house and you can legally sell it (the paper) to someone else; called an assignment of contract; so any negative feedback from the seller and mention that you really dont want to do that, but you will if you must???

Downside2: I did this when prices were RISING, so by the time I took possession, the home was usually worth substantially more money and I looked like a RE hero. If prices are falling, you could be looking at buying a house that's worth less than you paid? Something to think about?

I've got other scenarios, but this is the one "I" would do. It may be too gutsy for you? Let me know?
Good Luck,

[KFC911]

Rob's a pro in this arena, but I'd most definitely consider the "worst case scenario" of what happens if you can't sell your current home and even the second one a few months down the road. At least in these parts, things are going to get worse before they get better anytime soon imo.

[Dave L]

I went with something similar to Rob's tactic on my current house. The owners were leaving for California and had already dropped the price. My realestate agent, in the driveway, commented to the owners that the price was still a little high. A few days later the owners dropped the price another 10k and supposedly had another offer coming in. We offered full price, no conditions (no home inspection, no subject to finance, no subject to selling our house). Fortunately we priced our old house well and were able to sell it in 3 days to a recently divorced woman. Our fall back position was to hold on to the old house and rent it out.

Things are a little more dicey now so I would be sure you can get the additional financing in place and I would try to get as many recent comps on your current place so you can set an aggressive price.

[jhynesrockmtn]

Very scarey scenario in this market. Do you want two houses or at least payments on two? I'd make a more straightforward contingency offer with a longish period to sell. Then you need to accept what a realistic price is on your place and convince their agent you are serious and have priced your place to move. We did this years ago, 90 day period, sold our existing house on about day 80. I've seen places sitting in my neighborhood for sale for more than a year.

[911Rob]

Originally Posted by HardDrive

We want this house, and we are willing to dish for it. It would not break us to make the payments to the sellers, but I would not want to do it for a year.......

EDIT: I should add that the current owners are gone. They have moved out into a retirement home, and I believe the place is paid off.

"This" is the info the client has provided. "We WANT this house..."
I would definately take head to the warnings herein posted too!
My post is a very seasoned RE investor tactic; be careful.

[911Rob]

PS: Have FUN with it, figure out what YOU want and go after it, enjoying every step of the journey.... it's a ton of fun if you enjoy the process. If the process stresses you out, not good.

[Dueller]

I had a somewhat similar situation on my current house. We were in a situation where there were multiple bidders within 4 days of the property being listed. We offered near full asking price with no contingencies and a larger than normal earnest money deposit and a quick closing date. They accepted our offer over another slightly higher offer because the other offer had a sale of home contingency.

We really needed to sell our existing house before closing but knew the market was softening so we arranged a bridge loan just in case.

as luck would have it we had a pretty quick offer on our house...BUT that deal fell thru 14 days before we were to close on the new house. I figured up what the bridge loan would cost us and called one prospect thathad looked at our house and was interested but didn't make an offer. I made her an offer she couldn't refuse by dropping our asking price and throwing in a lot of concessions. Only catch was we had to close in 11 dyas. Since she worked for a mortgage broker, she was able to put it together and we had a simultaneous closing.

End result: we got the house we wanted, sold our house instead of having to get a bridge loan, saved us the expense of the bridge loan, buyer of our house got a great deal, and everybody lived happily ever after.

My thoughts are if you can, get a bridge loan approved as a backup, agressively market your house (perhaps concentrate on sweetening the pot for prospective buyers of your house as opposed to the one you want), go in with as few contingencies on the purchase as possible. If you canafford $3K a month for the option on the new house you certainly can afford interest on a 90-180 day bridge loan.

YMMV

[HardDrive]

Thank you for the information and ideas.

This house goes on the market Monday morning. We'll see. Maybe we won't be so in love when we see it.

Bah. I hate to admit it, but the market does have me a bit spooked. I don't mind it drifting down, but I worry about getting caught holding the bag is there is some huge downward shock. There are a ton of old folks in our neighborhood who want to sell at the moment. Rumor is 40 propertys.

[craigster59]

Rule #1: Never fall in love with the deal.

[aigel]

Originally Posted by craigster59

Rule #1: Never fall in love with the deal.

+1

Why not sell your house first and then look for a new one?

George

[DARISC]

I'm smiling as I write this .

Years ago, made an offer on a house contingent on the sale of ours (this is in CA). The offer was accepted with the condition that the seller's house remained on the market with no "sold" sign and if another offer was recieved that the seller chose to accept, we would have 72 hours "to perform", which is to say, close the deal whether or not we'd sold our house.

When our broker presented that counter-offer to us to sign, we were discouraged because it was unlikely we'd be able to close on our house in 3 days.

Our broker, a friend, started laughing and said "I haven't told you everything." It turns out the seller's broker made a typo; instead of 3 "days", the document said 3 "months".

I said, "Yeah, but they made a mistake!" "Not as far as I'm concerned!" he said laughing. "Let's just wait and see. As it stands, we've got 3 months to close on the sale of your house."

So, a week later the seller gets another offer and our broker is notified that we have 3 days to perform. Our broker says no, 3 months. So he gets a call from the broker who owned the company wanting to meet with him in his office.

Our broker friend, a cocky little guy, was laughing when he called and told us and said that he wanted us to go to the meeting with him, which we did. The broker was a pompous ass who sat confidently at his desk and said "Don't be ridiculous! Nobody gives 3 months to perform on a contingency sale! The seller has accepted another offer with a cash deposit and that's that!", or words to that effect.

So our broker said, "Well you did; read your counter-offer. And the state real estate commission won't be happy to learn that you accepted 2 offers on the same piece of property. My buyers have 3 months from the day your counter-offer was signed and returned, to perform. Good luck in explaining that to whoever's offer you also accepted. I think we're done here, no?"

The broker, all red faced and seemingly about to blow a blood vessel in his forehead, said nothing, just gave a backhanded flip towards the door to his office, which we walked out of - smiling.

We sold our house well within the 3 month period and moved into our new one.

Anyway, if you proposed such a performance clause (with no typo ), the seller might accept it, no? Seems the seller would have nothing to lose. No gaurantee for you since the house could be sold out from under you, but if they don't get another offer before you sell, you're locked in, no?

[911Rob]

Ha, Ha; You forgot to mention the "subject to viewing" clause. Now that's funny!
Better stay put?

Dari: not necessarily a story I'd be proud of?

We do Subject to Sale of homes all the time; they are good clauses if used properly and I would argue that your clause of "months" did not fulfill the intent of the contract and its verbal presentation. I'd have told you to take a walk, see ya in court if you so desire.

Subject to the Buyer entering into an unconditional agreement to sell the Buyer's property at ___ by ___ .

This condition is for the sole benefit of the Buyer.

However, the Seller may, upon receipt of another acceptable offer at any time deliver a written notice to the Buyer or to ____ requiring the Buyer to remove all conditions from the contract within ___ hours of the delivery of the notice, not to include Sundays and Statutory Holidays. Should the Buyer fail to remove all the conditions before the expiry of the notice period, the contract will terminate.

Although these clauses do allow a certain amount of the negotiations to be finalized, they are weak and generally not a clause that I would personally use to secure a property; you can be bumped off too easily. Now they are a good, safe method of purchasing property for the income limited buyer that doesn't want a financial risk, but the seller really does stay in control. Once a clause like this is introduced you really lose all the negotiating power as a buyer. If the seller comes back to you to firm up or terminate, you likely don't have much choice but to walk away unless you have the ability to remove subjects without the sale of your current property secured in place?

I've accepted these subject to sale clauses on my personal properties, but I only give 24 hours notice to terminate. If I receive a bona-fide offer from another source and the first offer has no way of buying my home unless they sell theirs first, I'm not messing with them and tying up my property while they fart around.

I have never bought a personal residence that I planned to "live in" after selling my own home; I always buy the home I'm moving to first, then sell my home later. But then, I've always chosen to do things the easy way and most people choose the hard way imo. Life really aint that hard if you figure out what you want and then focus on that. Stay focused, it always works out.

[DARISC]

Originally Posted by 911Rob

Dari: not necessarily a story I'd be proud of?

Oh, I'm not proud of it! But I'm not ashamed either. It happened and I find it mildly amusing. Actually we don't know whether it was a typo or if the salesman just did a dumb thing. My impression at the time was that the counter was delivered to my broker and not been prediscussed with the seller's broker. So when our broker read it he said, well.....o.k.

Dunno what the court would have said, given that it was in black & white on their offer. I guess the seller's broker didn't either so didn't fight it. "Gee Yeronner, we meant 3 "days" might not have been convincing. At any rate, at most, the seller was delayed for about a month and a half and as far as I know, maybe he took whatever loss that involved out of the commission he paid his broker - I know he was pissed at his broker, not at us. How I know this is because the seller managed a large restaurant that we frequented and we had spoken with him on numerous occasions before and after we bought his house (which we didn't know was his until well into the deal).

Uhh, yer not gonna tell me that real estate is never a cut-throat business, are ya?

Edit: I just now recall; before the meeting we paid a real estate lawyer for a consultation on what to do and he said, essentially, "they wrote the offer". I was going to let it go prior to that consultation.

[HardDrive]

The 72 hours 'performance' contigency seems to be pretty standard.

[DARISC]

Originally Posted by HardDrive

The 72 hours 'performance' contigency seems to be pretty standard.

As far as I know, you're right.

It's important to bear in mid that at the time of my tale, sales were slow and it wouldn't necessarily have seemed outrageous for a seller who'd had their house on the market for a significant time already, to spec, 3months as opposed to 3 days.

As I recall, we felt VERY fortunate that we were able to sell ours in less than 3 months and go through with the deal.

[Normy]

"There are a few houses around with contingency offers on them in the area, but most sellers are rejecting them (problem being that folks that already have homes are the only ones who could afford to move up into this area....)."

Hello?

-Am I the only one around here who knows what the term "comps" means?

"Comps" means comparable sales in the same neighborhood with the same square footage and the same amenities. Have you checked the comps in your area, and are you current and up to date on them? The best way to find your "comps" is via Realtor.com or craigslist.com.

You can reject this advice if you want, but you house WON'T sell if your price is wrong, especially these days, and these sites can allow you to find a price that is realistic.

(price too high!)

OOPS! someone farted just now~

Have fun! By the way, I run a company on the side that owns 4 houses and 33 condominium units in Fort Lauderdale.

N!

[DARISC]

Originally Posted by Normy

Hello?

-Am I the only one around here who knows what the term "comps" means?
N!

Why.....I don't think so. What prompts you to ask?

[HardDrive]

Finding comps in this area is difficult. Houses with very similar space/bedrooms/baths can go for radically different prices because of their views and location. A house on a main arterial street can go for 1/2 the price of a smaller house 300yrds, away with a great view on a quieter street. This is an old neighboorhood, the houses and lots are unique.