Contingent offers are a common occurrence in the real estate world. They are offers made by buyers that are dependent on certain conditions being met before the sale can be finalized. These conditions can range from the buyer’s ability to secure financing to the successful completion of a home inspection. While contingent offers can be a great way for buyers to protect themselves, they also come with their own set of risks. In fact, it is estimated that around 3-4% of contingent offers fall through. So, let’s take a closer look at why this happens and how buyers and sellers can avoid common setbacks.
Why Do Contingent Offers Fall Through?
1. Financing Issues
One of the most common reasons for a contingent offer to fall through is financing issues. In some cases, the buyer may not be able to secure the necessary funds to purchase the property. This can happen due to a variety of reasons such as a change in the buyer’s financial situation, a low appraisal, or the lender’s requirements not being met. In such cases, the buyer may not be able to fulfill the financing contingency and the offer may fall through.
2. Home Inspection
Another common reason for a contingent offer to fall through is the home inspection. A home inspection is a crucial step in the home buying process as it helps the buyer identify any potential issues with the property. If the inspection reveals major problems that the buyer is not willing to deal with, they may choose to back out of the offer. This can be a major setback for the seller as they may have to start the selling process all over again.
3. Appraisal Issues
An appraisal is an important part of the home buying process as it determines the fair market value of the property. If the appraisal comes in lower than the agreed-upon price, it can create problems for both the buyer and the seller. The buyer may not be able to secure the necessary financing, and the seller may not be willing to lower the price. This can lead to the contingent offer falling through.
4. Contingency Deadlines
Contingent offers come with specific deadlines that must be met for the sale to proceed. If these deadlines are not met, the offer may fall through. For example, if the buyer fails to secure financing within the specified time frame, the seller may choose to move on to another buyer. Similarly, if the home inspection is not completed within the given time, the seller may have the right to terminate the offer.
How Can Buyers and Sellers Avoid Common Setbacks?
1. Communication is Key
The key to avoiding common setbacks with contingent offers is communication. Both the buyer and the seller should be open and transparent about their expectations and concerns. This can help avoid any misunderstandings and ensure that both parties are on the same page throughout the process.
2. Be Realistic
Buyers should be realistic about their financial situation and their expectations from the property. They should also be aware of the current market conditions and the possibility of a low appraisal. Similarly, sellers should be realistic about the condition of their property and the price they are asking for. Being realistic can help avoid any major issues down the line.
3. Work with Experienced Professionals
Working with experienced real estate agents, lenders, and home inspectors can make a big difference in the success of a contingent offer. These professionals have the knowledge and expertise to guide buyers and sellers through the process and help them avoid common setbacks.
4. Have a Backup Plan
Buyers and sellers should always have a backup plan in case the contingent offer falls through. This can help minimize any potential losses and ensure that the selling or buying process can continue smoothly.
In conclusion, contingent offers can be a great way for buyers to protect themselves, but they also come with their own set of risks. By understanding the common reasons for contingent offers falling through and taking necessary precautions, buyers and sellers can increase their chances of a successful sale. Communication, being realistic, working with experienced professionals, and having a backup plan are all key factors in avoiding common setbacks with contingent offers. So, if you are considering making or accepting a contingent offer, make sure to keep these tips in mind for a smooth and successful transaction.
