Ask Andrew: Sale Of Home Contingency
By: Andrew Goodman
Q: I have found a home that I want to purchase. However, I have to sell my current home first. I don’t want to lose the opportunity to purchase the home I found. I have heard about a sale of home contingency. What is it and how does it work?
A: A Sale of the Buyer’s Property Contingency is a clause in a real estate contract that allows a buyer to ratify a contract on a new home and protects them in the event that they have to sell their current home first.
There are two parts to this process. The first is the Sale of Buyer’s Property Contingency and the second is a Settlement of Buyer’s Property Contingency.
A Sale of the Buyer’s Property Contingency is exactly that. It’s a contingency to protect the buyer in the event that his or her home doesn’t sell. They buyer is released from their purchase contract or it becomes void if a contract is not ratified on their current home for sale within a specific timeframe.
This contingency is typically for 30 days, but the exact deadline would be outlined and agreed upon in this contingency clause in the contract.
There is some risk to this arrangement. Even though the buyer may be under contract on their new home while its contingent on the sale of their current home, the seller is allowed to market that home as under contract “with a kickout.”
A kickout means that the seller could accept another bona fide offer as a backup, which could potentially kick out the initial buyer’s contract. When that back-up offer comes in, the seller must let the current buyer know that they have a certain amount of days to satisfy the Sale of the Buyer’s Property Contingency, remove the contingency all together, or the contract would become void.
The amount of days to satisfy that contingency would be outlined in the contingency clause. Typically, I like to see at least a week if I’m representing the buyer or a shorter window if I’m representing the seller.
In order to satisfy the contingency, the buyer can remove the entire contingency from the contract showing the ability to purchase the home without having to sell his or her current home. Or the buyer can present a ratified contract on their current home.
If they have a contract on their current home, they must also show that all contingencies have been satisfied (most commonly the home, termite and radon inspection contingencies) with the exception of the financing contingency for their Sale of Buyer’s Property Contingency to be considered satisfied.
If the Sale of the Buyer’s Property Contingency is satisfied, the buyer’s contract on his or her new home will proceed to settlement with a Settlement of the Buyer’s Property Contingency.
This contingency means that the buyer has a contract on the current home, all of the contingencies (other than financing) have been satisfied and they are now just waiting for the buyer’s lender to finish up the loan package for settlement. With this contingency in place, the seller wouldn’t be permitted to move forward with another contract unless the buyer’s current home’s settlement was delayed by more than a certain amount of days, or all parties agreed to release the contract.
Buyers use these contingencies to protect themselves when they have to sell a home before buying their new one. However, sellers typically don’t like seeing these contingencies at all since there is a higher risk of the contract falling through.
Please discuss with a Realtor so the contract and these contingencies can be structured to best suit your situation.