Ep 13: Why Most Contingent Offers Fail

[00:00:00] Speaker A: Welcome to AllView360 all things real Estate Podcast. With your hosts, Daniel Gutierrez and Shannon Dempsey, we explore real estate from every angle, giving you insights, tools, and confidence to make smart decisions that support your future. It's time for a new perspective on property. Welcome to AllView360. [00:00:19] Speaker B: What are we talking about today? [00:00:20] Speaker A: We are talking about contingent offers and why most of them fail. [00:00:24] Speaker B: Okay, big topic, Hot topic. This has been something that we've seen go in and out of vogue over the years, generally because of need and necessity, but something that needs to be talked about a lot more. [00:00:37] Speaker A: Yes. In markets earlier in the 2000s, it was if you had a contingent offer, you were not even looked at. And now they're very common and something people need to wrap their heads around and something that I feel agents need to get very familiar with because when they do happen, a lot of them fail. And that's because a lot of the smaller details or timelines or risk and all of that's not properly evaluated. Just so in general, the contingent offer scenario is something that people really need to pay attention to and consider. [00:01:09] Speaker B: Yeah. Okay. Well, love to hear about it. I know for me, when I hear contingent offer, I encourage you a little bit. Or if a client comes to me and say, hey, I want to do something that needs to be contingent, I lose a lot of steam or wind out of the sales. It's a lot harder. But you have a lot more experience with this than I do, so I'd love to hear your thoughts. [00:01:25] Speaker A: I know I have a few contingent deals right now, kind of all across the board. They're all very different with the stages of contingencies. And some I have the buyer, some I have the seller. No contingent deal really looks the same. But what does look the same is the risk that you're accepting and trying to work through. It's not fun. I don't like them, but it is the reality we are in right now. So the biggest things of why a contingent offer is scary for the seller is because they're really agreeing to. Or maybe we should explain exactly what a contingent offer in the way that we're speaking about it. Yeah. So we are specifically speaking about contingent offers, where the buyer needs to sell their home and close on it in order for them to purchase the home that they want to purchase. Therefore, they are contingent on the sale [00:02:15] Speaker B: of their home and not necessarily just their home. Also, really, any building, I had a buyer coming to me for one of our commercial offices who wanted to sell contingent their land sale going through in the desert. Oh, so they wanted to sell a piece of land in the desert in order to buy our office building in the beach. [00:02:34] Speaker A: Those are two completely different markets to evaluate to see if it even makes sense. [00:02:38] Speaker B: Yeah, contingent nonetheless. [00:02:40] Speaker A: What do they end up doing? No, it was a hard no. [00:02:43] Speaker B: It was a hard no. It was. It's been listed for a long time. The sellers don't want to deal with it. It was just a no. [00:02:50] Speaker A: It was a no. So the four big stages of a contingent buyer, and this is usually the first aspect I go into explaining when someone has to sell their house or when we're reviewing with a seller, a buyer that has a contingent offer is what you just mentioned. We're on the market. We have to sell it. We have not opened escrow yet. Even before that. Sometimes you'll get a contingent offer where they have to sell their house and they're not even listed yet. So that's. That, to me, is the biggest risk. It's. We don't even know the details of your house. We don't even know how it's going to perform in your market. How many days until you can actually get it listed, all of that. Then there's the contingent buyers that have to sell their house, but they're in escrow. So we're like, okay, we kind of have a set timeline there. We know what's happening. Then. The strongest contingent buyer is someone that has to sell their house. Their house is in escrow, and all of their contingencies are removed with their buyer. And at that point, you know, it kind of becomes a lot less risky. I have had only twice in the last couple years where buyers have written offers on properties and have not shared or disclosed that they're contingent because they are past the contingency period. And then we find out. Usually both times we found out when it's coming close to the closing date. They don't have a reason for why they're not closing on time because their real reason is that something's happening with their deal and they can't share that because they've lied about not being contingent. And then usually that's when it comes out. And then you have to give more grace to get it closed. Or I guess you could cancel on them, whatever you want to do, but you have contingent buyer not on the market. Contingent buyer on the market, not an escrow. Contingent buyer in escrow. Contingent buyer through all their contingencies with their buyer. That is what I lay out when a buyer wants to be contingent or that is where I start to evaluate with a seller if their buyer is contingent. [00:04:42] Speaker B: Yeah, absolutely. [00:04:43] Speaker A: All of that to say, for any reason, a deal can fall apart. You know, it's just kind of adding to the mix of all the other contingencies. But the scariest thing and why sellers don't really like this is usually you're somewhat in control of the reasons that your deal would fall apart when there's not a contingent buyer on the table. When you have a buyer that's contingent, you have their other end of a transaction that doesn't involve you at all. There's a whole other agent on the other side and client that you're not even speaking to, a lending process that you're not part of. You know, it's just. It's so much out of your control. You're basically putting all of your eggs in the basket of them closing their deal without you knowing what's going on and that I don't like. So that's where it becomes really risky. Every single contingent deal that I've dealt with, really, in the last few months, there's been so many different aspects to each particular deal. The biggest one or the first one I encountered was I had the buyer that was contingent and the sellers just wouldn't even talk to us unless we were in escrow. So that's a seller just not right out of the gate, not even agreeing to do a contingent deal. That sucks. So now you're. You're talking about all the contingencies there. Another one. We were open to the buyer's contingent offer. We stipulated in our response as the sellers, we will accept your contingent offer. However, you are unable to accept a contingent offer on your purchase, which makes complete sense. Right? [00:06:07] Speaker B: Yeah. [00:06:08] Speaker A: You're not. We're not going to keep kicking the can down the road. What if they're, you know, you just. You have to end the contingency line. They freaked and pulled their offer and were mad at us for controlling them. So that didn't work out. I don't know what they're doing, but yeah, we're. We're in escrow with another contingent buyer and all has gone well. They actually, they were contingent. They had a buyer, they opened escrow, their buyer backed out. So we gave them more time to get another buyer. And in that particular seller's case, we had been on the market for a long time. And in evaluating what price their buyer was listing their house at and the location that they were, there's confidence that they will get their home moved quicker than what we were getting on their property. So that's why those sellers were willing to take the risk with that contingent buyer, because of the property they actually had to sell. If they needed to sell land in the desert, that would not have been one that we would have accepted. Yeah, but all that to say there's just so many elements of even entertaining a contingent offer and evaluating the risk. And even if you go through all the details and you assess what potentially could happen here or there or where this could go wrong, you can't predict what's going to happen in a contingent buyer situation. There's just too many moving parts. But you can understand that that's the risk you're taking and that you're willing to take it and that we're just going to work through all of the moving parts as they happen. And so it takes the seller really, really understanding that what they're agreeing to, it takes the buyer understanding how they have to move and communicate and then everybody communicating properly. And that's when I see deals actually come together. When everything's out on the table up front, everyone is communicating strongly, understands what they're doing and then works through all of the hiccups. Because there seem to be more when it comes to these contingent situations. [00:07:55] Speaker B: Yeah, a lot more complexity than already complex transaction. [00:07:59] Speaker A: Aside from the certainty of the deal closing from a seller's risk perspective, they're also dealing with two different escrow companies, typically two different lenders, you know, a lot of moving parts. So the risk of everyone not staying on the same page or communicating properly and their homes off the market. So to me, that's one of the bigger issues when you accept a contingent buyer. You go into. It's different in different MLs, but some version of contingent status, active contingent, something that removes your active listing into a status that doesn't show up across all the platforms as active anymore. So the biggest thing sellers have to understand when you're giving the time, whatever time's negotiated. Our contract standard is 17 days. You know, you negotiate it based on the scenario. But contracts standard 17 days. For that amount of time that you're giving your buyer to get their house in escrow or under contract or whatever, you are off the market. Essentially you are in a scenario where people are not going to be seeing your home. You're not going to be getting the same amount of showing requests, if any. You're not able to accept or you're able to accept backup offers, but you're. You're just not in a position to be able to seek them out. And so that, to me is the biggest risk is the market time. Because, say on day 17, they don't have their house in escrow or they lost their buyer. They're not removing that contingency. You lost those 17 days, but the clock kept going. So now you're back on the market with a higher day count. Back to square one. [00:09:28] Speaker B: Not only that, but you're back on market after a failed escrow, which is [00:09:32] Speaker A: after a failed escrow, if you even get to the point where someone asks what happened, they're going to potentially assume something's wrong with the house. That's why you fell out of escrow, even though it had nothing to do with that. You could have had a perfect house, agreed to all repairs, Everything could have been super solid. They don't know that you fell out of escrow because your buyer couldn't perform, because their buyer couldn't perform. So it just kind of puts you in a bad position if the deal doesn't go through. But that's the risk you take, I think. [00:10:00] Speaker B: Well, someone showed it isn't. You were telling me. Is the agent also presenting the offer, Someone who does the analysis and says, hey, I know it's a contingent offer, but it's priced well. Here's the situation. And presents everything and packages it neatly and correctly, I think reduces a lot of concern versus the haphazard contingent offer where, you know, they may be completely unrealistic in ever getting that price for sale. So that's a factor too. [00:10:29] Speaker A: It is. There seems to be. And I don't know if there's any stats to support this, but there seems to be a lot of room for agents, the buyer agent with the contingent offer to not share all the information, maybe be hesitant to let you know that it's a shaky deal on the other end. There's stipulations in place in the contract that they have to let you know if they fall out of escrow or it just the communication and the ethics of the agent on the other side. So important because there's so much gray area for you to actually know what's going on on the other side, unless you're pushy and on top of it. [00:11:05] Speaker B: Yeah. [00:11:06] Speaker A: A good example is we're moving forward on our deal. Right. We're doing request for repairs. We're doing all of those things. The whole time the other deal's hanging on by a thread and they're not going to share that because they don't want you to know, but they have to share it. And eventually if it falls apart, you're supposed to know. Or they'll try to get it back into escrow if they're still within their day count. So just knowing that there is a lot of room for those moving parts to not be communicated is another. That's just a personal part of those deals that I don't like. [00:11:35] Speaker B: Yeah. And I feel like both transactions at one point or another. Hanging on by a thread for whatever reason. [00:11:40] Speaker A: Hanging on by a thread. [00:11:41] Speaker B: Life. [00:11:42] Speaker A: Yeah. So let's say we have a buyer that tells us, okay, we need to sell our house before we, before we make an offer on a property. How are you coaching them if they are entertaining options that do not include them selling them their house or ways to make them competitive and strong? Potentially a bridge loan or something where they do not have to put all of that risk on the seller in order to stand out on the house. [00:12:09] Speaker B: Is that a question for me? [00:12:10] Speaker A: Yeah. How are you? Are you coaching people on bridge loans or ways to not be contingent? [00:12:14] Speaker B: So. Yes, but in our pre discussion we agreed that you would be doing all the coaching today and I would be dodging all of the questions. [00:12:24] Speaker A: And I told you I want you to talk about bridge loans because I understand the financial stuff. That's more so I'll come from a [00:12:33] Speaker B: perspective or just kind of preface this with. I'm generally more conservative in how I do things. I don't want to put someone in a bad position. Bridge loans, as you asked and for context, bridge loan is exactly what it sounds like. It's a short term loan to get you from point A to point B over. Over. Kind of a rough situation. And that's why it's a bridge loan. So you're talking generally six months to 12 months, maybe sometimes 18 months. Much higher interest rate, generally interest only the duration of the loan and then a big balloon at the end to repay back the principal. And not a great situation. But sometimes is the perfect instrument to do exactly what you need to. As long as you are confident in your financial ability doesn't put you in a bad position and you're comfortable that it's going to get you to where you need. [00:13:21] Speaker A: Are you coaching on bridge loans and pushing bridge loans in lieu of not being contingent or are you only bringing that up if people bring it up themselves? What's your stance on the bridge loan? [00:13:34] Speaker B: I think my general stance and everything is provide clients with all the opportunities and resources and options but coach them accordingly. And it's not the. It's not a golden goose or a foolproof plan because it's also too not always easy to get a bridge loan. You have to go to a specific lender who allows it. They have to be in a good financial position. If someone's already contingent and they really don't have any other money, a bridge loan isn't going to be the great situation. Because worst case scenario, let's say they duke out that bridge loan, they buy that new asset, their current property doesn't sell, you know, they're going to be hemorrhaging cash until that loan comes due. Now they're at a point of a fire sale. [00:14:08] Speaker A: The risk with the, with the loan actually being costly is that it's typically interest only. [00:14:14] Speaker B: Well, regardless of it's interest only, if it's not, if it's interest and principal, those payments are going to be higher because you're also paying back the principal on a monthly basis. But generally they're structured in such a way where it's only interest only for the duration of the loan. But you're talking, let's say for a simple million dollar loan, you're talking maybe 10%. You know, you're $100,000 a year in just interest payments. That amortizes down to what, like around $8,000? A little under $8,000 a month in interest only. Like that's super, super expensive. [00:14:47] Speaker A: So if you are not closing, if you go the bridge loan route and you're not closing on the property that you have for sale, you're paying that every month until you get the property sold, right? [00:14:57] Speaker B: Or like 8200amonth, it would be, I think around the right math. But yeah, you're paying $8,200 a month in interest until that property is sold. But there's a caveat where if that's a 12 month loan, at the end of 12 months, unless your buyer, your lender allows you to extend that million dollars coming due on top of the interest you've already paid. [00:15:14] Speaker A: Makes sense. I have a buyer right now. They have all of the numbers for a bridge loan. They know that they can go the bridge loan route if they want to. And our preference is to not. So we're going to use the bridge loan scenario. If they fall in love with a property and it's competitive, or if they fall in love with a property and the seller will not absolutely entertain their contingent situation in any way. In that case, we're going to then go the bridge loan route. But the first effort will be to go the contingent route because it's significantly less costly. For the buyer, it's just a matter of finding a seller that's open to it. [00:15:50] Speaker B: And this is where you have to be pragmatic in how you do it and try to take the emotion out of the real estate purchase, because it could get people into a bad position. [00:15:59] Speaker A: You get people into a bad position. Okay, I have a contingent buyer. I have a seller that's accepted the contingency. We've lined up all those timelines. I messed up myself in my first year of real estate with those contingency timelines with myself where we. We were contingent on the sale of the condo to buy the house, closed escrow on the condo. We were not close to closing escrow on the house because of the timelines. Then I was homeless. I did not line it up properly. We're sitting in our U haul, sleeping at our friend's house with Brian saying, who is my realtor? What just happened? So the, the biggest thing once you actually get those contingent offers and deals in place is that timeline. [00:16:40] Speaker B: The whole thing. [00:16:40] Speaker A: How you. The whole thing. But you have to. You have to look at the contingency periods on the house that is being sold, make sure that those contingencies are lining up to be removed and sorted out before you have to remove contingencies on the house that you're buying, because you can't. You don't want to remove all here when you still have some going on here. [00:17:00] Speaker B: And bake in some buffer, because things always happen. I remember one of the deals you did in helping me purchase. [00:17:08] Speaker A: Did I mess it up? [00:17:09] Speaker B: No. 13, 14 years ago. I remember when Wells Fargo wired the money to the wrong bank and we couldn't close, and it took multiple days for them to correct it. So we did everything correct on our side. The lender literally wired the money to the wrong bank, and I was sleeping on a couch with all my stuff in a U haul with no one else's fault besides the, you know, some administrative person in Wells Fargo somewhere or [00:17:33] Speaker A: your agent that didn't work in that buffer for what's happening or a million things in between. Million things in between. So not only lining up your contingency periods, but baking in. So what I'm doing with buyers that are contingent when we're selling their houses is writing in a seller in possession for up to a week on the house that they're selling. So they close escrow on their house, but they have seven days to. And, you know, not everyone agrees to it, but this is what we're pushing for. They have seven days for their property to close, funds to go over to the other side to close the property that they're purchasing and a few days to move out, do whatever needs to happen there, or a few days for things to hit the fan and still happen where everyone's not scrambling at the end. [00:18:19] Speaker B: How do you do that? Because a contingent offer is already hard to get approved. So you're now adding an additional ask that adds some complexity and difficulty. So how do you package all of this? How do you do it? [00:18:29] Speaker A: So getting the contingent offer accepted is the first big challenge. Negotiating as a rent back or seller in possession with their buyer is a separate challenge because we're not having all of the contingency issues in place on that sale. We're accepting their buyer. [00:18:46] Speaker B: So you do it after the fact? [00:18:48] Speaker A: No. Well, sort of. So we're getting a contingent offer accepted. Great. Our house is on the market. We're going to get it sold. We have not identified our buyer yet, but we're going to buy your house and you're going to give us 17 days to get our house into escrow. So I'm taking all of the terms from the one that's already in escrow that they're buying, timelines when they have to be out of the house, when they have to remove contingencies. And I'm using those dates to negotiate and set the terms for the deal that they're going to put in place when they get a buyer. And then we're asking that buyer, you need to also allow us to remain in the house X amount of days after the close of escrow. It doesn't always go that way, but that's an ideal scenario. [00:19:27] Speaker B: Okay. [00:19:28] Speaker A: The other big thing, so you have your timing with contingencies, you have your timing of actually closing and having to be out of your house. And then that earnest money deposit, I try to go lower on the side that we are making an offer on because I'm going to have to negotiate equal or higher deposit with their buyer. Because if on day, the final hour of all of it, if their buyer falls through and now we're going to fight for their deposit, it's going to need to wash out the deposit that their sellers are going to fight for. [00:19:59] Speaker B: Could you go into that a little bit? Because I feel like there's a huge misconception of how earnest money deposits work and how that actually works if escrows do fall apart. [00:20:06] Speaker A: That is not on our agenda in our pre discussion. [00:20:10] Speaker B: You're right. [00:20:11] Speaker A: Just kidding. We'll totally go into it. So the earnest money deposit is typically anywhere 1 to 3% that the buyer that is purchasing the property needs to put into, in our state, an escrow account three business days from the day after you open escrow. [00:20:27] Speaker B: And that's per the contract. The car contract. [00:20:29] Speaker A: Per our car contract, that money sits in the escrow account and will get sent back to the buyer if they were to back out during their contingency periods. So once they get through loan appraisal insurance, hoa, all of the contingency periods. [00:20:43] Speaker B: Whatever's designated in the purchase agreement. [00:20:45] Speaker A: Yes, whatever is agreed to while they're in that period, that amount of money will be sent back to them if they choose to back out of the deal. We're active removal state, so it doesn't just happen when that day hits. They have to physically sign the contingency removal and issue it to the other side. That's the moment really we're all looking for in a transaction because that's the buyer saying, we have satisfied all our concerns. We've agreed on everything we want to agree on. We are removing all of our contingencies, Mr. Seller. So after this moment, if we are to back out, our deposit is up for fight. You don't automatically get it, but. [00:21:22] Speaker B: And that's the thing is up for a fight. And most people don't understand that. [00:21:26] Speaker A: Oh, have you ever had to fight for a earnest money deposit? [00:21:29] Speaker B: 100%. [00:21:30] Speaker A: You did you get it? [00:21:32] Speaker B: I got 50% of it. It was actually one of the properties I was selling, my own personal investment, 90 day escrow, large asset, day of closing, the buyer backs out and came up with an excuse. We tried to come up to middle ground to an agreement. He's like, look, I'm just not going to buy it. [00:21:51] Speaker A: So he had removed all his contingencies. [00:21:54] Speaker B: Yeah. We're 90 days into escrow, removed all contingencies. We were like, okay, we're keeping your deposit. And essentially after that, he stopped responding. His attorney started responding and his attorney. It was a hotel. [00:22:09] Speaker A: Oh, okay. That's a big deposit. [00:22:11] Speaker B: Yeah. No, it was hundreds of thousands of dollars. So his attorney started responding. His attorneys were like, hey, look, we're not giving up the deposit. Best case scenario, we'll give you half or sue us. So we spoke with our attorneys. Attorneys are like, yeah, just take the 50% because you're going to spend the next three years in court. You're going to spend a million dollars trying to get a few hundred thousand dollars. Just settle and take it. [00:22:34] Speaker A: Oh, painful. [00:22:35] Speaker B: Yeah. So we did. [00:22:37] Speaker A: That's that is a big. You're right. People don't think about what. It's not like they're like we're backing out and then just. You get the deposit. [00:22:43] Speaker B: Yeah. And escrow. Escrow has to have both signatures, everyone in a grant to release that money. They won't do it otherwise. And it'll just be locked up in there until, you know, California, three, four years later, where you actually make it through the court system. And for those of you who have not gone into litigation, it is very expensive, very timely, and, uh, generally only the attorneys make money. [00:23:05] Speaker A: Yeah. And that's escrow's job, is to facilitate that exact scenario and be impartial, really, to both sides. Right. We're holding the money. You have to send us the agreement for us to release it here. And there is in the cancellation of escrow boxes that you check that. That confirm with escrow, am I sending this money back to the buyer or, you know, whatever it might be. Yeah, yeah. So we could do a whole podcast on all of that because that is a. Not as cut and dry as people think it is. [00:23:35] Speaker B: Exactly. [00:23:35] Speaker A: But if everything goes how it's supposed to go, the buyer decides. They removed all their contingencies. They decide on day 28, they're backing out because they don't want to buy your house anymore. And you get their deposit. But now you're. And their deposit is $10,000. Now you're gonna have to back out of your deal because you no longer can do it anymore. You. You don't have your house sold first, you're begging for an extension. And we do that. They say, no, you're out of the deal. You potentially then have to give your deposit to them. So you need to make sure that it all lines up. The likelihood of that actually happening is low, but that is something you need to pay attention to. The amount of that deposit and the amount of deposit that you are offering on the other end. [00:24:19] Speaker B: Yeah, there's complexity, but when done correctly, I think there's a lot of opportunity, especially in tough markets like this. [00:24:25] Speaker A: There are. And all of that's like day by day. So usually when you open escrow or when I open escrow, I'll have the timeline set. The TC sets the timelines. We're following them. Right. With a contingent deal, it's day by day. It's. You're checking in on the other deal. Have they scheduled their inspections and you're scheduling yours. It's just a day by day, constant communication to try to keep both of these deals going. At the same time on track with [00:24:51] Speaker B: all of the moving parts, keeping everyone off a ledge. [00:24:55] Speaker A: You're never off a ledge. It's even. I have one closing Thursday and then we're going to be able to close on the purchase that they're making on Friday. So there's three agents involved, three different parties, three different houses. And we're all. We all finally are taking a breath because all contingencies are removed. But we're still very much aware that there's essentially two loans that can go wrong. And you know, it could happen. It's just stressful. Yeah, very stressful. Even if you have your finger on every single point of everything that's happening, it just. It's a house of cards. [00:25:27] Speaker B: Well, even if you finger on it, you don't control it. You don't feel like. [00:25:30] Speaker A: I don't like that. [00:25:31] Speaker B: Loan officers or mortgages in general, it's like until the. The loan funds, like anything could happen. [00:25:37] Speaker A: Anything could happen. Even after the loan funds, sometimes things can happen. [00:25:42] Speaker B: Yeah. [00:25:43] Speaker A: Remind me to tell you about my parking spot on the other property issue. I had a deal get pulled from the recording process, which is like very rare, but that was super fun. That's for another episode. But with all of this and all of the contingencies that are going into place, the other reason that communication needs to be strong and you need to act in good faith the entire time and over communicate is sometimes that buyer does back out of. Of the house that you're waiting to sell in order for them to purchase yours. And then it becomes a whole new negotiation. We're past the date that we agreed to to let you get your house sold. You were going strong, you had good offers, your buyer backed out. Now you renegotiate the timeline. Are we as sellers going to push you out and go back on the market? Are we as sellers going to give you more time to get your house back in escrow again? Or sometimes it's kind of a mix of both. We're going to go back on the active market, but give you, you know, hope that you find another buyer and first right of refusal comes into play. And if you get another buyer, we'll do all that. So usually that sort of point of the negotiation, a lot of that that factors in is how strong the communication was, how in the loop were we on the whole process. Were you truly acting in good faith and you just ended up with a buyer that didn't follow through. So if you're an agent with a buyer, that's contingent and you Are not overly communicating with the agent that has the house that you're buying and you're not relaying all of the information. It could end up working against you. When it comes time to essentially beg for more time. [00:27:15] Speaker B: It could come back against you when you have another deal with that agent. They, like, you lose your credibility, you lose your trust. And they're not going to go to bat for you in the future. Especially when you're begging for that contingent offer. [00:27:27] Speaker A: No, the one that I kind of mentioned earlier. And I wouldn't say this agent lost credibility with me, but I'm definitely aware it was. They were not a contingent buyer. My sellers would not have accepted a contingent deal. I've had contingent offers on another listing and they just don't even. Do not care. We are not even looking at it. We don't even want to evaluate the risks and terms come to us when you're not contingent or when you're past your contingency removals with your sale. Okay, she wrote the offer non contingent. Technically, the buyer could have purchased the home non contingent. So she's not contingent. [00:28:03] Speaker B: Technically. [00:28:04] Speaker A: Technically, yeah. That involved her pulling money from different investment accounts. There was things she had to do with time frames in place to do so for that to happen. I did not know any of this. The offer is written. It's non contingent. They show us proof of funds where she's going to pull the money from. Great. She did have a property that she opened escrow on right after that. And the whole time is now deciding to purchase contingent knowing that she could fall back on the non contingent approach if she had to. Turns out she had to. That deal started to get really shaky for them. It was looking like it was going to close. Wasn't going to close. However, she had not started the timeline to pull her money out to purchase non contingent. So either way they were going to need. They ended up asking for three more weeks. It closed three weeks late. And the way that it was approached on the other end wasn't. Hey, Shannon. She actually is waiting for this property to sell. And for that reason we're asking for more time. Did not do that. What ended up happening is they were pushing reasons on us for delaying things. Oh, we need more time because you sent us this report two days after. Like none of it made sense. I'm like, yeah, you still got it within the timeframe. You're way past your day count to review it. It was excuse after excuse after excuse me. Excuse of why they were needing more time. None of the excuses remotely Made sense. So then I just flat out called and said, hey, by any chance are you waiting for another deal to close and lying to me about being contingent and then silence on the other end. And then finally she said, yes, she's waiting for a deal to close. Some A, B and C is happening. They're going to be able to close, just not on the day that we need them to. I said, great, thank you for being transparent. Because I knew on the other end, I had their investors, they understood it was around Christmas time, we weren't going to get an offer. You know, like it made sense and I could work with that actual factual information to negotiate and get terms in place that we're going to get the deal done. So I call my sellers, I say, here's what's happening. They lied to us. She's actually contingent. You can cancel, we can start that process, or you can grant her more time to get her deal closed. This is what's happening. They understood. They've been in that scenario before. Within five minutes. He said, no problem, Give her the three more weeks, tell her Merry Christmas. And off we went. We could have had probably 10 days of frustrating communication back and forth, not being transparent, not being clear, removed from our lives had they just said that from the beginning. So it's all about that communication and being transparent. And my hope is every agent involved with a contingent situation is agreeing to that because that's really one of the only ways to keep things smooth, if it's possible to keep it smooth. [00:30:44] Speaker B: Yeah. The difficult thing there is you also don't know what the seller or the, I guess the buyer was saying to their agent in regards to their contingency because they could have been saying, hey, you know, you're. You can't say this, you can't tell them. You can't disclose this. And that just puts everyone in a difficult situation. [00:30:59] Speaker A: But then at the. On the buyer's agent end, you need to say, okay, then you're going to put yourself in a position where they can issue a notice to perform and cancel on you. Because we are not able to act within the timeframes that everyone's agreed to. [00:31:11] Speaker B: Oh, honesty is key. [00:31:13] Speaker A: Honesty is key. And timelines are key. And the contingencies are key. I had another one where the seller would not. These are the people that were closing Thursday and Friday. The seller would not look at our contingent offer at all. I say, great, while you're on the market, it's my next door neighbor. I share a fence with this house that's the house my clients wanted to buy, I could see that no one's looking at the house. I'm there. No one's. No one showing your house. There's not, you know, all of that. So I tell my clients, let's go on the market. Let's try to get our house into escrow. They would look at our offer if we were in escrow. Let's try to get the house in escrow. And then once we have a contract in place, then we'll make an offer on that house. If we don't get your house in escrow by the time they get a buyer, no harm, no foul, but they need to buy it, they need a room downstairs, blah, blah, blah. It was very specific situation. We get a offer on their place call. They had just accepted an offer. Boo. So I say, let's stay on the market. Let's see if that buyer falls out. And you know what we can do there. Our offer didn't work out. We're waiting there. That house ended up falling out of escrow three separate times. The whole time we're on the market trying to get an offer to stick so we can make an offer on it. We finally get an offer. Offer sticks. Caller. Minutes ago, they had accepted an offer. So now our contingent offer, our contingent buy, no longer has a house that they can actually buy. And now we have, you know, an hour to accept this offer. Found him another property, convinced him to do it, and that's when we're closing. Thursday, Friday. That risk was all on the buyer. They're the ones putting their house on the market. They're the ones going through all the showings, the prep. I'm the one, you know, paying for all the marketing and getting everything going the whole time, knowing we are taking on this risk of all of this effort and time to potentially not even be able to purchase the house. So that's the buyer risk side of entertaining a contingent sell to buy scenario. [00:33:01] Speaker B: Yeah. [00:33:01] Speaker A: I don't know what karma came our way though, that the same floor plan hit the market down the street that they were able to. Yeah, that was lucky. [00:33:09] Speaker B: Yeah. How about on the leasebacks? That's a good opportunity. Good tool. [00:33:13] Speaker A: Yeah, the leasebacks. So that would be. And then that's where kind of going into suitable replacement housing and all of that. If you are a buyer that knows that you want to sell your house but don't necessarily know where you want to buy and you're going to be a contingent buyer. Is that what you mean as far as leasebacks? [00:33:34] Speaker B: Yeah. [00:33:35] Speaker A: Then you negotiate. That's a seller contingency. You negotiate with your buyer a lease back in your property to give you time to identify and purchase your next house. I like something better than leasebacks, though, which is a hard ask on the. And I did this with those people because if they. If you're a seller that's selling your house and you're going to buy another house and you can't identify the other house that you want to buy in the timeframe of your leaseback or the timeframe of your escrow, there, you're committed to selling with the buyer that you accepted unless you put the suitable replacement housing contingency in place. And that's a hard one too. That is where you're telling your buyer, if I can't find a house, suitable replacement housing after this one, I can cancel on you as a seller. Which is a rare scenario because most sellers do not have an option to cancel on their buyer once they enter escrow. And that's a hard one for a buyer to grasp because I'm going to do all my inspections, I'm going to make all the arrangements on my end to break my lease or whatever it is that they're doing to buy your house. And you can sell home. Yeah, maybe they're selling their house. Whatever they're doing to buy your house can all get pulled out from under them. If you then put into place that you are not going to sell the house anymore and you had suitable replacement housing set. [00:34:53] Speaker B: I'm sure there's a lot of agents who don't even know what that is or don't even know where they would find that it would. Probably not until it's too late that they would realize what it actually means. [00:35:01] Speaker A: Yeah, it's underutilized. It's not something that I. I've used to advertise when that. When a seller was scared about, am I going to be able to find a place? I know I need to sell my house. Like in a really competitive market, that's the smart move. You sell your house, you know what net proceeds you're dealing with, timeline. And then you go try to secure your next property. But that is really scary. If you don't have temporary housing, if you don't have a plan in place so you're not homeless, you don't want to let your house go. Suitable replacement housing does mitigate that risk, but it does make your house less appealing to certain buyers. I remember early on I was openly sharing at the open house, like, oh, they're going to need suitable replacement housing. And like this old school agent yelled at me, like, don't ever say that. No one's ever going to buy your house. And that's when I realized, like, oh, this isn't, you know, this is really risky for a buyer. The way the suitable replacement housing I have in place right now, it was an easier ask because I was able to say, hey, they already know what they want to buy. The second you write us an offer, we're going to write an offer on the house they want to buy. This should not come into play. Yeah, you for A, B and C. This is why I think this is all going to happen. But we cannot be homeless because these particular sellers need a very specific property and they were okay with it and they agreed to it. And you know, all is well. We didn't have to use any of the contingencies. Everything just went perfectly. Knock on wood. I still have a couple days. But that was one of the times that it was comfortable for my sellers because they knew they weren't going to be homeless if bad things happened and the buyer was willing to take on that risk. I just thought of something else with all of this too. Buyers, when you are writing a contingent offer on the sale of your home, there usually is some sort of premium that you will end up paying. Like you, if you want to come in low and you want to come in contingent, most sellers are going to balk at that. If you're competing with a offer that is not contingent, you're going to have to outshine that offer in some way, shape or form. Usually it's your purchase price, maybe it's terms, but most likely purchase price. So you're asking for time. So you're probably going to have to come up with more money because you can't leave both on the table. And as strong as we can make you seem, with all of the clear communication that this is what we're listing their house at, this is how long it's going to take us to sell it. Based on the last three months history or whatever it might be, you still are a risk and you're still most likely going to have to come up with more money or a stronger price than you'd pay if you were not contingent. And that's just the reality of it. [00:37:37] Speaker B: Yeah, it's the risk premium. Okay, so we've talked about a lot of different things. Could you break down just clear, concise way your top tips for writing a contingent offer? [00:37:49] Speaker A: No, please, please. It depends. So if I'm writing A contingent offer. Usually I tell that that buyer, let's get photos, let's get your house ready to launch, and we'll hit the market as soon as we know you've identified a house you want. That kind of eliminates some concern on that end. I'm writing this contingent offer. We're coming in as strong as possible with price. If I'm competing, we're figuring out exactly what the seller needs and how we can accomplish that with everything outside of the contingency that we're just gonna tuck in there at the end. Make sure that you are, if not listed, ready to launch. Don't write a contingent offer and say, I also need 10 days to prep my house to sell. Get marketing done and get on the open market. That's gonna make you weak. Do that stuff first. Have termite done, have your house ready to show immediately. Have all of your photos and marketing ready to go. Agents have everything populated where you can say, I can hit the open market within an hour of acceptance and truly mean that. And then you can demonstrate. Here's all of the things we've done to eliminate any sort of hiccups in the inspection escrow process on our sale. And that's things like having the termite inspection done. And I don't know about you guys, but San Diego, like having that defensible space clearance. All of the things that maybe cause issues, have an insurance quote so you know it's something that's easily obtained. Eliminate as much as you can about the sale of your home and package it in a way that you can. Present that to the listing agent on the house you want to buy. That's tip number one. Or that's tips. If you're not in escrow yet. If you are in escrow, put together as much as you can, details wise to demonstrate how strong your escrow is. Put them in touch with the lender of the buyer on your property. Allow them to speak to the buyer's agent on the property. Give them all of the information that they would need. Be as transparent as possible for them to help coach their clients on their comfort level with accepting your contingent offer. If you are contingent on the market and in escrow and have contingencies removed, do not lie about it and say you're not contingent. Let them know you are contingent. But this is where we're at in the process. Here's our full contingency removal, whatever it might be, because you might run into that period of time where you're going to have to ask for more Time and you don't want to be caught in a lie at that point. You want to keep everything going. The one time that I was okay with them not writing contingent and new, they were two days away from closing and they were an all cash deal. And he verbally said, we are writing an all cash offer. We have two days because they couldn't get their earnest money deposit in until it closed. Two days until they close their deal. For that reason, we need five days to get our earnest money deposit in. So they were contingent. He was transparent about it, but it wasn't written as a contingent offer and that didn't feel as shady. But top tips, do as much of the legwork upfront, communicate as much as possible and be fully transparent about what's happening on the back end. [00:40:51] Speaker B: Love it. Okay, top tips for creative deal structures for, for getting these approved. [00:40:56] Speaker A: Right. In terms as much as you can. Like we did with the one where the buyers freaked out. Write in terms that protect as much as you have control over on the way that that contingent offer accepts a buyer. So in that case, we had written, you can, you can be contingent on the sale of your home. We're willing to accept all of that. They were not even on the market yet. They wanted 28 days to get on the market, get their home and ask for this and that. You cannot accept a contingent buyer. That is our only ask in accepting all of this risk. Where I could have gotten ahead of those buyers freaking out is I probably should have could have laid out their reasoning behind it because it wasn't malicious on my seller's end. It truly was something that I understood mutually beneficial, right? Like the seller doesn't want you to accept a contingent buyer because then we're double contingent and so much can happen. They should have also not wanted to accept a contingent buyer. But for whatever reason, the way that I wrote it made it seem like we were trying to control them and tell them what to do. I had another offer come in with a contingent buyer that had similar terms that that agent had written in the offer. And it was we are contingent. How did he write it? It was beautiful. I was like, oh, I'm going to use this going forward. Buyer will not accept a contingent buyer. However, if a contingent offer comes through, will the seller review it and decide at that time? So basically, if you had a scenario where their buyer was all contingencies removed on their end, you know, able to close quickly, it wasn't an issue. Is that the type of contingent buyer that the seller might consider and I loved that because that's transparent. Right. We're, we're going to look at all offers if we have one that we like and is contingent, instead of you just saying no from the get, like, let's look at it together. And possibly it is something that you will be comfortable with us accepting. So that was kind of the middle ground there. And that probably will be how I write that contingency going forward. But I think that's a really strong tip for sellers accepting contingent buyers is to try to put as much stipulations in place on what that buyer does because they'll get excited, accept a contingent buyer, not put that in place and they'll accept a contingent buyer. And then you're just kicking the can down the road in this contract for however many more days with a whole house of cards underneath you. [00:43:12] Speaker B: Yeah, love it. Anything else that we should know or prepare for when looking at contingent offers or even writing one? [00:43:20] Speaker A: A lot of things never ends. On and on forever. There's a part on the actual cop form where I've learned this the hard way. You can set up an escrow to be, say you're writing an offer. We need a 60 day escrow. 17 of those 60 days is going to be us trying to find a buyer and remove that contingency. But we can guarantee, and then you have flexibility on the day count to accept, you know, a 30 day or possibly more buyer on your property. And all, all contingencies start at the same time. So we're going to try to sell our house. We're also going to start inspections on your house. Good to go. And that's like a 60 day escrow. There is a box you check. And I think a lot of agents miss this or don't read the form. I don't understand what happens. But there's a box you check that says our escrow contingency timeline and whatever our escrow count is isn't going to start until we secure our buyer. So then that for the seller leaves kind of an unknown day count. Right. Like it could be, they could take the full 17 days. Now we're 47 days into an escrow. Or they could take five and we're 35 days. But a buyer would want that because they're not having to do inspections. They're not starting their timeline, you know, paying things out of pocket that they're not going to get back from. That there's zero skin in the game on the buyer's end. If that box is checked. And I've Missed that box before very early on and never will I miss it again. I don't know how I missed it, but I'm sure a lot of agents might. So really understanding when you're reviewing that COP form, when does our actual escrow start? What risk does my seller have, what risk does the buyer have and how do we want this to look? [00:44:58] Speaker B: You're right and Skin in the game is a perfect way of putting it. But when you're getting these forms, or now upwards of 40 pages, sometimes longer, you have to spend the time to really analyze it and give a clear breakdown to your clients so they understand all of the risks, all of the details, all of the terms, and then answer questions if there's questions. Because there's a lot of things that are difficult for them to understand or comprehend the implications of those terms. [00:45:21] Speaker A: 100% and no contingent deal. Every time one comes across the table, it's a different breakdown for the client. [00:45:28] Speaker B: Yeah. [00:45:28] Speaker A: And do the work ahead of time, do the legwork, evaluate all aspects of it within your control, put it all together and then have the conversation with your seller. [00:45:39] Speaker B: So this has been super valuable. Anything else that you want to tell us in regards to contingent offers? And if not, do you think there's going to be more before it gets any better? [00:45:49] Speaker A: I do think there's going to be more. I have a lot more to say, but for another time. I feel like we just kind of scratched the surface on all of this, but I do. I am seeing more contingent offers. It will not surprise me if a lot more coming down the pipeline, especially as that mid buyer is impacted by all of the things happening in the world. People are going to need to sell their houses to purchase other houses. So I think in a certain price point you're going to see that more and more and you're going to really need to evaluate and possibly take on some risk, possibly be open to it. You know, maybe not right away when you first hit the market as a seller, but if you're on the market 60 days, you don't have any offers on the table. The only one that comes across is a contingent buyer. You probably should be considering it in some capacity. So I would say don't be scared to be open to it. Don't be scared to have it all evaluated and consider it. Don't shut it down right away. Cause that might be, you know, if you're set 17 days off the market waiting for someone else to sell their house and their house might sell quicker than yours, or you're going to go on the market for 30 more days before you even get another offer. What makes more sense. So I think just be open to it and make sure that your agent fully understands the process and details of every single thing going into it. Yeah, well. [00:47:03] Speaker B: And you're such a wonderful agent. I think you. [00:47:05] Speaker A: You don't have to say that. [00:47:07] Speaker B: Well, I knew you were going to say that. [00:47:08] Speaker A: Remember when I was homeless in my U Haul? [00:47:10] Speaker B: Yeah. You've learned since then. That was what, last week? But you are, you're a great agent and I don't think you give yourself enough credit. But we've both worked with a lot of agents in the. In the industry of the market, and great agents are more so the exception and not the norm. So for a buyer really, really know who you're working with, it's not always your, you know, your cousin who only does deals for family isn't always the best option. So finding someone who really knows, understands, you know, create agent is worth their weight in gold. [00:47:41] Speaker A: It is in actually getting the deal done. Especially in this scenario. [00:47:45] Speaker B: Yeah. No. 20, you know, 20, 21. Anyone could get a deal done. If you were contingent, you had no shot. But everyone was buying everything for any amount of money. That's not the case anymore. Now you need actual skill. [00:47:57] Speaker A: Yeah. Just have a level head and evaluate everything. [00:48:01] Speaker B: Be honest. [00:48:01] Speaker A: Yep. And be honest. [00:48:03] Speaker B: Cool. [00:48:04] Speaker A: Scream that tattoo all that on my forehead for everyone. [00:48:07] Speaker B: Shannon, thanks for sharing your insights. If you're listening, like, subscribe, let us know your thoughts. If you want us to talk about anything specific, please let us know in the comment box. We appreciate everyone listening. [00:48:19] Speaker A: Bye, you guys. [00:48:20] Speaker B: Bye. [00:48:22] Speaker A: That's a wrap on this episode of AllView360, all things real estate. If you found this helpful, don't forget to subscribe, leave a review and share it with someone navigating their own real estate estate journey. Connect with us anytime on Instagram @AllView360 and on LinkedIn @AllView Real Estate. Until next time, stay curious and keep your perspective. 360.