Now that the first time buyer rush is nearing its end (unless it’s extended…stay tuned…), and there’s a lack of inventory for entry-level price points (below $450k-ish) in much of our area, this might be the ideal time for owners to start thinking about putting their homes on the market in our area. Yes, despite the holidays coming up…especially if the credit gets extended.
But many sellers worry:
- What happens if I can’t sell my home and I’m already under contract on another?
- What if I have a contract on my home but it falls through?
- What if I can’t even find a home that I want to buy and someone has already bought mine?
- How do I coordinate the closings so that I’m not homeless?
These are tricky issues to work through, but there are several tools we have at our disposal, which I’ll cover over a few posts.
The first tool we have is called a Home Sale Contingency, aka Sale of Purchaser’s Property and Kick Out. This contingency protects the seller (let’s call them “Bob & Mary”) in case they can’t sell their current home (let’s say “Old House”). It allows the Homeowner to effectively cancel their next purchase (“New House”) if a buyer doesn’t sell Old House. It’s Bob & Mary saying “I”ll buy your house if I can sell mine.”
While this is a standard contingency, it is NOT included in the main Regional Sales Contract in our area–you MUST include it in a separate addendum. In short, it allows, for a negotiable number of days, for Bob & Mary to try to sell Old House while still being under contract on New House. Meanwhile, New House’s owner is typically afforded the opportunity to continue to market the home and accept backup offers. If New House’s owner accepts a back up offer, then they deliver a notice that gives Bob & Mary “x” number of days to either remove the contingency or void the contract. This is called a “kickout.” However, in our area, the status is changed from “Active” to “Contingent/Kickout” and many buyers will not look at properties that have any sort of contingent status.
Obviously a clause that protects Bob & Mary so well is not desirable to New House’s owner, so sometimes it’s difficult to negotiate these clauses in our area. New House’s owner may not want to change the status and potentially lose other buyers who don’t have a home sale contingency. And New House’s owner should of course do their own due diligence to make sure Bob & Mary are doing all they can to sell Old House before they accept this type of contingency. Can you imagine the string of events if Bob & Mary, for example, also accept this type of contingency from a buyer? New House’s owner may not be willing to take this risk. But if New House’s owner is convinced Bob & Mary’s house will sell, and it’s the only offer they have, there’s a chance they will take the offer.
(Note to sellers: there are serious pros and cons to accepting this type of contingent offer, and steps you can take to provide maximum assurance. Consult your agent!) If not, then Bob & Mary need to consider other options, which we’ll cover in other posts. (Contact me to be notified of new posts on this topic, or to discuss other tools at a seller’s disposal.)
Disclaimer: This post is not intended as legal advice. Consult your agent or attorney if you need assistance with contract clauses or negotiations.