The early decade was the golden age of real estate. Unless you have been living under a rock, you know things have changed significantly lately.
The early decade was a time of dreams. Money was cheap. Super cheap! As a result, the real estate market went from lukewarm to scorching hot overnight. With cheap money providing the fuel, a seven year run unlike any other every seen occurred. Homes in Las Vegas were appreciating at a rate of over 25 percent annually at one point in time. It was magic.
These days, the magic has run out. Money is no longer cheap. Lenders are sweating bullets having given loans to some borrowers who probably shouldn't have been entrusted with a library card much less hundreds of thousands of dollars. As the money has dried up, so has the real estate market. This has led to a necessary change in tactic for sellers. The fast times of this early decade are gone and so are some of the accepted seller practices.
One of the big issues now going through a correction in the real estate market is the contingency sale. When homes were moving on and off the market in a matter of weeks earlier this decade, nobody batted an eye at a contingency sale. Well, they are now.
So, what is a contingency sale? It is a sale that is conditioned on the buyer having something occur before the sale is binding on them. Sound confusing? It really is not. The typical contingency sale involves financing in one form or another. Let's look at an example.
I offer to buy your home. I offer the general terms you are looking for and you agree. I ask, however, that the sale by contingent on my first selling my current home. This is a contingency sale. The sale of my home is often replaced by the requirement that I first get a mortgage for your home.
Either of these two situations should be avoided like the plague these days. Why? Well, how cold is the real estate market? Do you really want to take a gamble that the buyer will be able to sell his home during the 30 or 60 day escrow period? If financing is the issue, you need only look at the current disaster that is the mortgage industry. The buyer may have perfect credit, but then again he or she may not.
Making a sale contingent on financing or a home sale was acceptable earlier this decade. As a seller, you should really avoid such clauses in 2007 and for the foreseeable future.
