Should you accept a contingent offer?

After listing your home, hosting an open house and negotiating with buyers, you'll have some offers on the table.

There's are good chance that some of these include contingencies, which are conditions that need to be met for the sale to be completed. They can come from you or the buyer and are often used to determine who will pay for certain fees, such as the home inspection and appraisal costs. Buyers can also include contingencies that say the sale contract is voided if they can't obtain financing or sell their current home within a specified amount of time. The latter is usually the cause.

As part of the negotiation process, you and your real estate agent have to determine if accepting these contingencies are a good trade-off for what the buyer is conceding. Here are tips to deciding whether an such an offer is profitable:

Consider the risk

Accepting a contingent offer can lead to a host of issues, all of which can result in your home sitting on the market without a buyer. After signing the contract, you may not be allowed to show the home to other interested parties, which means you'll have to wait until the end of the grace period established in the contract to find out whether the proposed buyer has his or her affairs in order.

Additionally, there's a chance that you'll wait for financing or a sale to come, and the buyer will default on the contract. This can lead to legal and financial headaches.

Determining your leverage in the real estate market can help with weighing the risk. If buyers have the upper hand, there's more cause to accept a contingent offer, as it could be the only offer that you receive. However, if demand is greater than supply, you'll have enough offers to consider other options before tying your home to one buyer's ability to sell.

Research the buyer's home

To provide more assurance that your prospective buyer can sell his or her current home, ask questions about the listing. First, find out whether the property is already on the market. If it's not, there's a chance this buyer isn't serious about selling. Then, have a real estate agent check the price on the home by researching comparable sale prices in the area to determine whether it's overpriced. Lastly, check how long the house has been on the market and compare that time to the average number of days on market for other homes in the neighborhood.

Protect your interests

You are not required to accept a buyer's contingencies as is. You have to negotiate to find terms that are favorable to both parties. If, for example, an individual wants a contingency stating that you cannot list your home while it is under contract, you can counter with one that says you can list the home and the current buyer has a certain amount of time to meet his or her obligations if you get another offer. This is known as a kick-out clause.

Make sure that you thoroughly review your contract with your real estate agent before agreeing to anything. This is a legally binding document, and unless the buyer defaults, you are going to be held to its terms. A review with an expert can help you determine which contingencies are less advantageous to your own goals. Asking your agent is the best way to make a decision, as he or she can provide a list of alternative terms if the ones presented by the buyer aren't good.