With limited inventory, many homeowners want to put their current home on the market with a “Home of Choice” contingency. A Home of Choice contingency basically gives you a pre-determined period of time to find a new home before you commit to the sale of your current home (usually 17 days).
Escrow officially opens and the time frames start only after you remove your Home of Choice contingency.
A Home of Choice contingency allows you to sell your home to a buyer with the option to back out of the agreement and stay in your home if you’re unable to find a new home within your Home of Choice contingency period.
While that sounds like a good option for homeowners, it can put you in a Catch 22 position in a competitive market.
Why? Because if you’re competing against other buyers for your new home, the chances of them accepting your offer over other non-contingent offers when you haven’t opened escrow on your new home is slim.
Here’s a breakdown of the potential strength of your offer on a new home when you need to sell your current home first. (Listed from weakest to strongest):
- Your current house is not on the market yet and you write an offer on a new house – Few sellers will accept a contingent offer from a buyer who needs to sell his/her house when the house is not on the market unless a) the sellers are desperate for an offer and/or b) you agree to list your current home priced to sell quickly and likely to attract multiple offers.
- Your house is on the market, but not in escrow – Very challenging to get acceptance unless the home you are trying to purchase has been listed for over 30 days without a lot of activity and you offer a good price.
- You have a buyer for your house, but you won’t open escrow until you have an accepted offer on your new house – This is when you have a Home of Choice contingency. Again, it’s tough to get the seller of your new house to accept this unless their house has been on the market awhile and they are desperate for an offer. If it’s a new listing with lots of interested buyers, you have almost no shot of winning.
- Contingent on selling your home, in escrow, but your buyer has not removed contingencies – Tough sell on a new listing you are trying to purchase unless there isn’t a lot of activity for that house. Good shot on a house that’s been listed 2+ weeks.
- Contingent on selling and the buyer has removed all contingencies – Very close to completely non-contingent. This means that if the buyer cancelled on the purchase of your house, they would lose their 3% deposit. That’s very unlikely to happen. This puts you in a very good position to buy a new home. Most sellers would entertain an offer with this contingency.
- Non-contingent on selling your house – Here’s your best option If you currently own a home and need the money from your home to buy your new home. Close escrow on your current home with the new buyer and rent it back from the new buyer until you close on your new home. Your rent amount is normally the new owner’s total payment. This makes you as strong as any other non-contingent buyer.
If you have any questions and would like to discuss the best strategy to sell your home and find another, let’s get in touch!