When you are buying a new home and you have a home you need to sell before you buy you will most likely need to make your agreement with the builder “Contingent Upon the Sale of Your Existing Home”. Simply speaking that means if you don’t sell your home you are not obligated to purchase from the builder. Most new home builders can accommodate you easily on a new presold home however some may not on a “spec home” depending on various factors. Many times however the new home buyer would rather buy a “spec home” than a “presold home” because then they don’t have to move twice. This creates a dilemma for both parties.
Difference between a “spec home” or a “presold home” is.
A spec home is a new home the builder constructs prior to having a buyer for it. The builder will typically pick out a popular floorplan in a popular price range that is most likely to appeal to the “typical buyer” in the new home market. Big advantage for new home buyer is it’s ready for move in!
A presold home is “made to order” for the customer. The customer can pick out all the colors and materials for the home and can even make modifications to the design so that it is their personal new custom home.
The reason a “presold” type purchase is easier in this situation is the builder has not invested any money in the deal thus far. If you don’t get your home sold then the builder doesn’t lose any “real” money just the time he spent. A “spec home” is quite different. The builder has likely financed the “spec home” through his bank and is paying interest monthly on the home. If the builder agrees to a “contingency contract” then for all practical purposes he is taking the home off the market for which real estate agents and customers won’t bother to look at a home. If your home doesn’t sell then the builder is out all the interest he paid during the time you were trying to sell your home and they are starting over from “square one” on the sale of the “spec home“.
What to Do If You Want a Home Ready to Move In?
Here are a couple of things to help ease the builder’s mind if you want to do a “contingent” contract on a spec home:
- LIST THE HOME WITH A GOOD REAL ESTATE AGENT – This lets the builder know that your home is being professionally marketed.
- PRICE THE HOME TO SELL – Have your agent look at comparable sales and days on market then price your home to sell in a reasonably short period of time. Give the builder all the same information showing them that you are pricing your home competitively, so it sells in the shortest time possible. Keep in mind that in some markets it’s better to price the home low to bring in more buyer and build up the price.
- INSERT A “KICKOUT” CLAUSE IN THE CONTRACT WITH THE BUILDER – The “first right of refusal” basically says that if the builder finds another buyer he can give you written notice and you will have a pre-defined period in which to remove the contingency or he will proceed with the other buyer. Although this isn’t the best option for you sometimes it may be the only way to get the builder to agree to a “contingent” sale.