Dear Big Move,
My husband and I are selling the first and only home we’ve ever purchased. Our buyers backed out the day of closing and we’re under contract with our new home. We may have to terminate that contract, and wait until our home sells.
The agents are pushing for us to get a bridge loan, which I had never heard of before. I’ve done some reading, but from what I’ve read they don’t sound great. They come with a higher interest rate and closing costs.
There were no inspection issues. The agent told us there was nothing to worry about. It was an all-cash offer with contingency on sale of their home. They got their earnest money back as they backed out due to their home not selling.
How can they back out at the last minute and claim that? It wasn’t under contract and they knew that days or weeks beforehand. There were so many red flags. We have never sold a house before and this is awful.
What should we do?
Frustrated
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear Frustrated,
It can be incredibly frustrating to be so close to the finish line and tripping up. But the idea to secure a bridge loan may be one with merit. Your attorney should have clearly explained the timeline for this sale, and your experience is a cautionary tale for other sellers.
“I wish I could say that it hasn’t happened to me as a real-estate agent both on the buy and sell side, but it has,” Bill Delzell, a New York-based real-estate broker with Lake Homes Realty, told me.
But this situation is a little odd. Generally, selling a home to buy another requires careful planning, and the fact that you had closed on the home without getting your previous one closed is far from ideal, Delzell said.
“I’m not sure how you got to this point where you were expecting to close on your existing property prior to the buyers selling their property, which apparently was a contingency of the offer,” he said. “That contingency had to be removed prior to closing, if it wasn’t, why would anyone suggest closing on the house?”
The length of the contingencies can run from 30 to 60 days, and if a buyer can’t sell their own home and their new purchase would be dependent on the sale, they could back out. “It is unlikely a seller will agree to this offer but if they do, their deal will depend on the buyer’s terms,” according to Chase Bank in this guide on contingent offers.
If their contingencies are not satisfied, the sale will not close. They can, as they did, walk away from the sale and still get their earnest money back.
Ask for an extension
You could ask for an extension of the contingency for another 30 days. “If they agree, that will add more time,” he adds.
Ask the people who are buying your home for an extended closing date. “Whatever they decide will really help you to make the right choice, which will probably include a loan from somewhere,” Delzell said.
And bridge loans aren’t an entirely alien concept.
These are short-term loans that are meant to help people like you, stuck with timing buying a new home and selling the current one. But, yes, you may have to pay additional fees.
It’s not ideal: It may come at a higher interest rate, as you point out, you’ll have to put up some collateral, and ultimately, you’ll be juggling two mortgages — for the current home and the new one — as well as the bridge loan, all at the same time.
“Consider other sources as well,” Delzell said. “Some retirement accounts allow you to borrow short term for things like housing.”
In the meantime, please review your contract with your attorney. “There shouldn’t have been a close scheduled for your existing house until after your buyers had an accepted offer on their home,” he added.
For now, focus on what you can control, versus getting worked up over what you can’t. You can’t stop the buyer from walking away, it seems, but you can talk to your lawyer, and take some type of loan or dip into savings to move ahead with your sale. When the sale closes, you pocket the profit, and you can reset.
With the housing market heating up, it will only be a matter of time before you find a new buyer. And you’ll be all the wiser with this transaction.
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