Seven percent of winning offers written by Redfin agents last month were contingent on the sale of the buyer’s home, up from less than 5 percent last year
Here’s another sign that even as the spring housing market begins to heat up, buyers have more power than they did a year earlier: offers with home sale contingencies are on the rise.
Homebuyers who are also selling their previous home sometimes include a home sale contingency on their offer, which means that the buyer’s offer is contingent on the sale of their previous home. It’s not a standard component of most offers the way that inspection and financing contingencies are, but it is a way of allowing the buyer to coordinate the timing of the sale of their previous home with the purchase of their new home and to ensure they will have the funds available to close on their new home without having to carry two mortgages at once.
The share of winning offers written by Redfin agents that included a sale contingency rose to 7.1 percent in February—a five-month high and more than two percentage points higher than the same time a year earlier.
This new data comes from a proprietary tool available to Redfin agents in select markets to enable them to quickly and easily complete offer paperwork for customers via their smartphone. The tool has been in use for at least one year in all of the metro areas measured (Austin, Chicago, Dallas, Houston, San Antonio and Washington, D.C.).
We spoke with a few Redfin agents in Maryland, one of the markets that has seen a marked increase in sale contingencies, to get some insight into why more winning offers are including the clause.
“Fewer buyers today are getting qualified to hold two mortgages simultaneously,” said Redfin agent Rheetu Pal Mahajan. “They’re also concerned that they may not be able to sell their property easily so don’t want to take a chance. On the sell side, listing agents are opening up to the idea. Last year, whenever I spoke of a home sale contingency, listing agents basically implied ‘not to bother’ with submitting an offer. This year, ‘If it’s an otherwise good offer, bring it in. I will try to encourage my sellers to accept.’ It’s definitely a change in tune on both sides.”
“Buyers who are including a home sale contingency in their offer now are moving because they want to, not so much because they have to,” explained Redfin agent Ashley Skiratko. “The buyers’ mindset is ‘We really like this specific home and we would move for this home. We only want to list our home if we know this home we offer on is ours. We aren’t moving if our offer isn’t accepted.’”
The bump in sale contingencies is a sign that the market is moving closer to a balance between sellers and buyers, since it signals that homebuyers are facing less competition and their agents have higher confidence that an offer with a sale contingency won’t be rejected by sellers or passed over for a stronger offer with fewer contingencies. This is also evidenced by the dramatic decline in bidding wars and increases in price drops.
“I’ve had several listings where my clients accepted an offer that included a home sale contingency this year,” said Redfin agent Deborah Kennedy. “Last year a home sale contingency would have caused a seller to immediately eliminate that offer from contention because we had plenty of other non-contingent offers. This year we are seeing very few bidding wars and homes for sale are sitting for longer on the market so sellers are more willing to take the potential risk of accepting a home sale contingency.”
“This new balance of power is good for the housing market,” said Redfin chief economist Daryl Fairweather. “Some potential buyers were scared away last year when asked to waive an inspection or financing contingency. We may see more buyers come back now that the market is more in their favor.”
It remains to be seen how much the market will heat up this spring, but so far the signs are pointing to a much more balanced housing market where buyers can take a little more time and be a little more cautious with their offers.
This post first appeared on Redfin.com. To see the original, click here.