money houseI had a buyer call and ask how strong a contingency offer is perceived in the Austin real estate market. What makes an offer a contingency is an addendum that is attached to a contract. The contingency addendum defines certain timelines and deadlines that a seller and buyer agree to. A contingency addendum is used when a buyer needs to make a purchase contingent on the sale of their existing home. A contingency addendum is used to protect the buyer’s earnest money in the new contract.

Anything can happen when a home goes under contract, from a buyer simply changing their mind during the option period to an underwriter denying a loan. A contingency eliminates some of the risk for the buyer by protecting the earnest money on the home they want to purchase.

Buying a Home in Austin with a Contingency can be a Challenge

Contingencies don’t eliminate all for the risk the buyer. The addendum typically has a deadline for releasing the contingency if the seller has another offer they wish to accept. The deadline is typically 3 days. If the buyer is not secure enough that the contract to purchase their existing home is going to move forward, they may not be comfortable releasing the contingency. The earnest money would be at risk and the buyer would be in default if they can’t close.

If the buyer does not release the contingency, their contract terminates. The good news is that they get their earnest money back – the bad news is that they no longer have a house.

Active and Active Contingent listings in the Austin Multiple Listing Service

For the seller, accepting a contingency offer may seem like a win-win because they can accept another offer – but there is a catch. When a seller accepts one, the status in the Austin Multiple Listing Service changes to AC, instead of A for Active. AC statuses appear at the bottom of buyer’s home searches and often get less traffic. Right now in Austin, with so many homes going into multiple offers in the greater Austin area, it is hard for contingency buyers to compete due to the risk of never making it to the finish line.