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Resale Contingency and Purchase Price Negotiation

In the residential real estate business, a “resale contingency” is a term used to describe the very common situation in which the buyer needs to sell their existing home in order to buy another one. That makes sense. Most people cannot afford to pay two mortgages at the same time. In fact, it is very unlikely the buyer would get approved for the mortgage to purchase the new home until the old house is sold and the mortgage is paid off.

That is definately the “safe” thing to do, but is it the best business decision? I think not, and will explain below.

(1) A seller would much prefer to have a non-contingent offer.

(2) Most sellers won’t seriously consider a contingent offer.

(3) But, if the price on the contingent offer is high enough, most sellers would say, what the hell. If it works we made out better than we thought we would. Plus, the house is still on the market so we have nothing to lose.

(4) Likewise, a buyer with a resale contingency would generally be willing to pay more for a home, thinking that if they aren’t taking much of a risk because they can hold out to try to their price on the sale end without ay risk, so what do we have to lose?

(5) In other words, buyers with resale contingencies generally end up paying more for the home they intend to purchase.

(6) On the flip side of that, a buyer without a resale contingency (a) can negotiate a lower price on their purchase, and (b) has a better shot at getting a mortgage.

(7) If you are a buyer and need to sell your home before purchasing another, the better business decision is to reduce the listing price on the home you want to sell. You may not be getting their target price, but you should be able to make it up on the purchase side, if you are smart about it and are somewhat flexible in what you are looking for.