The hidden perils of home selling — a tale of two contingencies
In this seller story from Haus, we follow Rob’s home sale in Parker, Colorado. Rob previously sold a couple homes and both had closed without a hitch. When he needed to sell his home because of a divorce, he hoped the experience would be the same. He didn’t expect one sale to fall through, let alone two.
Rob bought his first property in his twenties in Anchorage, Alaska. It was a duplex that he had been renting out and when he decided to sell it, it sold in one day with a seamless transaction. His next home was in Colorado and when he sold it, it had multiple offers and went off without a hitch. He was hoping his third home sale would be the same.
Rob was going through a divorce. They needed to sell their five bedroom home in Parker, a nice suburb of Denver, so he and his ex-wife could move on. They bought the home two years ago, and called the real estate agent they had used as buyers to start the selling process. The market in Parker was hot and homes were selling quickly. They listed the home on a Friday in July and received multiple offers that same day. They chose an offer above their asking price with what appeared to be no contingencies, and started the closing process without a second thought.
A week before closing, Rob got a surprising call from his real estate agent. The sale had fallen through. Unknown to both Rob and his agent, the buyers had a relocation bridge loan that was not disclosed in their original offer. A bridge loan allows the buyer to take equity out of the current home and use it as down payment on the new residence, with the expectation that the current home will close within a short time frame and the bridge loan will be repaid. These are often used to make a buyer’s offer more competitive because it gives them the money for a down payment and the capital to hold on to two mortgages at the same time.
However, the terms of the buyer’s bridge loan stated that their loan was contingent on them having their current house under contract. They didn’t even have their house on the market. So when their loan fell through, so did the sale of Rob’s home.
A week before closing, Rob got a surprising call from his real estate agent. The sale had fallen through.
Naturally, Rob was frustrated. The buyer’s agent had not disclosed this piece of information when submitting their offer. Had he known about this risk, he likely would have chosen a different buyer. After discussing his options with his agent, Rob decided to list the home again and hope for another quick offer. They put the home back on the market that same week.
It was now the end of August. Luckily, Rob received an offer at his asking price the same day he re-listed it. While it was a slightly lower offer than the previous one, and it had an explicit contingency on the sale of the buyer’s home, Rob felt confident. The buyers put 100% of the purchase price down as earnest money and appeared very motivated. They settled on a closing date of early October and Rob found an apartment convenient for his daughter’s school that would also take his german shepherd, signed a lease, and began getting ready to move.
The buyer’s home was in Durango, a small city in southwestern Colorado. With their home sale, the couple buying the Durango home had a specific vision for a kitchen lighting redesign project. They put a clause in their contract that the purchase was contingent on approval of the space from their lighting designer. During closing, the designer assessed the space and said it would be impossible to build what they wanted based on the kitchen’s infrastructure. The buyers pulled out.
It was nearing the end of September when Rob got the second dreaded call from his agent. Because the Durango home sale fell through, Rob’s buyers were now pulling out of his home sale. The buyers got to take back all their earnest money because of their home sale contingency, leaving Rob holding the bag again.
Rob was left with some decisions. The buyers tried to negotiate a rent-back agreement until their house sold, allowing Rob to collect rent from them until they sold their house. Rob was hesitant around the uncertainty of the buyer’s home sale since this was the second time he had been burned, and didn’t want to become a landlord and manage them as renters.
Rob decided to break his lease, move back in and put the home back on the market, hoping the third time would go better than the first two. Unfortunately, at this point it appeared to buyers as though his home had been on the market for over three months, which in Rob’s area was far above the average time on the market. Buyers would question why the home had not sold already — was there something wrong with it? Plus it was now late fall. Families looking to move before the school year started were already settled, and the pool of buyers had dwindled.
Buyers would question why the home had not sold already — was there something wrong with it? Plus it was now late fall. Families looking to move before the school year started were already settled, and the pool of buyers had dwindled.
This time on the market, rather than the quick and competitive offers he had gotten previously, Rob only received low offers significantly below his asking price.
For one offer, Rob and his agent tried to talk the buyers up to a price closer to his asking price, but the buyers were “kind of jerks,” responding with prickly denials, hinting that the home wouldn’t sell. Rob again was faced with a tough decision. Should he take a lower offer now, or take his home off the market completely and wait until the more favorable spring selling season?
He consulted his agent. She went through the pros and cons of putting the home back on the market then versus waiting until the spring. His agent pointed out that waiting would likely produce a more competitive pool of buyers and potentially better offers, but taking the offer now would allow him to be done and move on. Part of Rob felt she wanted him to take the lower offer and be done with the sale, but he felt like the offer was well below the price the home should fetch and that his best financial outcome would be in waiting.
Rob pulled his home off the market and decided to wait to try again. He plans on going into this next sale with eyes wide open. “All buyers are not created equal” he says, and now knows to be much more critical of all components of an offer, especially contingencies, when evaluating them. He would even consider choosing an offer that didn’t have the highest price if it had no contingencies, something he acknowledged would be hard for buyers to do at his price point, but would make a big difference to him.
When he buys his next home, he wants to explore creative ways to remove contingencies to be a more competitive buyer when making an offer.
“Hopefully we will have a better chapter two in the spring,” says Rob.
Haus is building products to promote open and fair home buying and selling. For more information, visit haus.com. Check out our other Seller Stories or our advice on Seven Things to Know Before Selling you Home in 2017.
