May 26, 2006
As the more “normal” real estate market returns to reality, and interest rates makes it more challenging for buyers to purchase homes with 100% financing, the care of handling contingent sales becomes more important.
Multiple Listing Service rules vary from region to region. In most local areas, once a seller accepts an offer, your home for all practical purposes “goes off the market”, and is no longer found on the public search engines.
REALTORS® know that there is a generally a 17-day period for buyers to complete their home inspections and obtain loan approval. Once the buyer signs for the removal of those contingencies, we consider the house generally “sold”.
Until then, he home is subject to cancellation if the appraisal fails to meet the sales price, the buyer does not qualify for the loan, of there is no agreement between buyer and seller as to the handling of any repair issues.
There is lack of agreement among the real estate community as to whether or not homes with accepted offers should remain on the “contingent list” for buyers to find, or if in reality, the home is sold for at least the 17-day period and should not be left on the active list.
We are also likely to see an increase in offers that are contingent on the sale of another property.
While this is good news for buyers who must sell first before they can afford to buy another home or who just don’t want to own two homes at once becaue the likelihood of a longer marketing time looms large.
Here’s how a contingent sale offer works. The buyers include a contingency in their purchase offer that says the purchase is subject to their existing home. If the buyers’ property sells, the sale goes through. But, if it does not, the sale is off and the buyers’ deposit is usually returned.
Given the choice, most sellers would prefer a non-contingent offer. It’s less risky. However, there are ways to structure a contingent sale offer to make it appealing.
HOUSE HUNTING TIP: One way is to include a release clause in the contract. A release, or kick-out, clause allows sellers to continue to market their home in the hopes of finding a better offer. If such an offer comes along, the sellers notify the buyers that they must remove their contingent sale contingency by a certain date and show that they are able to close. Otherwise, they must withdraw from the contract. The sellers are then free to proceed with the other offer.
A release clause usually includes a time period–often 72 hours. But, it can be any time period that the buyers and sellers agree to. If you’re dealing with obstinate sellers, you might shorten the time period to 48 or 24 hours.
This means that you’d have to move quickly if the sellers exercise the release clause. You may want to line up interim financing if you’re confident that your home will sell and if you don’t want to lose the new home to another buyer. This way, you would be prepared to remove your sale contingency and provide proof of your ability to close.
A contingent sale offer should include a time period of the buyer’s home to sell. Some contingent sale contingencies are structured so that the time period runs until the closing date. This is advantageous to the buyer, but it ties up the sellers’ home without giving them certainty that the sale will close.
Sellers might be more receptive if you structure your offer with two deadlines: one for the sale of your home and another for the closing of the new home purchase. This gives the sellers the option to cancel the deal if your home is not sold within a certain time.
Ideally, the release clause would expire as soon as you have an accepted offer on your home. This will preclude the seller from selling to another buyer after you’ve sold your home.
Buyers who have already entered into contract to sell their home are in a better position to negotiate. This is particularly so if the contingencies in this offer have been removed. In this case, you can make your offer contingent on the close of that sale. This is a stronger offer than one made contingent on the sale of your home.
THE CLOSING: Sellers who are entertaining an offer that’s contingent on the close of the buyer’s home sale should make sure that this sale is not contingent upon the sale of yet another property.