Mirador’s Chad Thomas on Contract Contingencies in the NYC Market for Brick Underground

Contingency Plan

In real estate, a contingent offer (also known as a contingency) is a purchase offer in which certain conditions must be met for the deal to go through. For example, if a buyer wants to purchase a house but has to sell her own apartment first, she can make a contingent offer to the seller, asking the seller to take the house off the market until she raises the necessary funds. If she doesn’t meet a given deadline, the deal can be canceled, and she may even face agreed upon penalties.

Contingent offers are relatively rare in a seller’s market, but Brick Underground reports they are becoming increasingly common in New York as the market slows down: “Contingent offers haven’t been seen much lately, given how hot the market has been—sellers could always find other takers—but some attorneys and agents report that they’ve been making their way back into the fray, signaling what could be a rebalancing in the market.”

To find out what forms contingent offers can take, Brick Underground spoke with Mirador Real Estate’s Chad Thomas, who explained how sellers can protect themselves from buyers who can’t hold up their end of the agreement:

One solution? A reasonable monetary compensation, say a promise to cover what’s called the carrying costs of a property—maintenance and utilities, for instance—for each month the seller has to wait for the buyer to make good on the sale. (The agreed-upon compensation doesn’t have to be tied to carrying costs, of course, but it’s a good place to start.)

“If the buyer is strong, and their contingency is specific to an appraisal or an amount, then the seller’s risk can be mitigated and they can probably move forward (obviously after agreeing on all the other basic terms),” says Chad Thomas of Mirador Real Estate.

Chad also offers advice for buyers who seek a mortgage consistency, in which either party may cancel the sale if the buyer is unable to secure a mortgage:

From the buyers’ perspective, Thomas suggests those who are risk-averse and want mortgage consistencies to offer to forfeit a portion of the contract deposit—as opposed to the entire amount—”if it’s a highly desirable property or a competitive buying environment.” This way, there’s some skin in the game, so to speak. “It’s a way of showing the seller that they’re willing to do everything possible to close,” explains Thomas.

Read the rest of the article here.