What is a home sale contingency and what are the benefits?

Can you please explain exactly what a home sale contingency is and what are the benefits for a seller?

A home sale contingency simply means that the purchaser of a property must sell and settle their property in order to purchase the new property. For instance…you have your property on the market. A purchaser is interested and wants to make an offer however they must first sell and settle their home in order to have the funds to purchase yours. Therefore they will write the agreement of sale contingent upon those terms. It can get complicated for both sides. There are two different ways to write such a contingency. The first would be a sale and settlement contingency with the right to continue marketing and a kick out clause or not and a sale and settlement contingency that does not allow the seller to accept any additional offers. Let’s look at the first.

Sale and Settlement contingency with the right to continue marketing…This simply means that the seller will continue to market the property to other potential home buyers and if an offer comes in on the property other than the one on the table and the seller wants to accept that offer the buyer then has a certain time period (normally 24-48 hours) to remove their sale contingency. If the first purchaser cannot remove the contingency then the seller is able to accept the second offer and must return all deposit monies to the 1st buyer. However all of this has to be done in writing. This can also be written that the seller is free to accept another offer without the “kickout” time period as long as they do so in writing to the 1st buyer. The downfall of this contingency for the SELLER is that the MLS must be notified of this situation and therefore it will be noted on the MLS that the house is under contract with the first right of refusal. This may, not always but may, eliminate some buyers from looking at the home as they don’t necessarily want to be in that position. Especially if they take the time to write the offer and then the first buyer is able to lift the sale contingency. So in that regard the showings probably would slow down considerably. Also although there is a specific date in the Agreement of Sale for settlement if the sale and settlement of the first offer does not proceed accordingly that can change.

The buyer is also taking risk. If they are unable to sell their property they may be spending money on home inspections, bank fees and appraisal fees that cannot be refunded if their home does not sell and another offer is accepted. They can also lose on a house that they had their hearts set upon.

The best advice is to trust your Realtor. If you receive an offer with a home sale and settlement contingency make sure it is fully explained to you. Also make sure your Realtor has done his/her homework to be sure that the home of the purchaser is listed at the correct price and have them prepare comps for you so that you can see their home is priced where it should be.

A settlement contingency is different. With a settlement contingency the purchaser of your home has already completed the marketing of their property. They have an agreement of sale in hand and they have a set settlement date. You should only accept a settlement contingency once the buyer of your home has all inspections completed on their current home to avoid any issues that come up that may keep their home from settling. Your Realtor should also look at their Agreement of Sale as well as the Buyer’s Financial from that buyer and their pre-approval. Your Realtor should be able to determine from this information whether or not this is a strong agreement. You want to be sure that your buyer’s agreement on their current home is strong to avoid a problem which in turn would keep your home from settling. Keep in mind that if their home does not settle (even if it is the actual day of settlement) the buyer does not have any obligation to purchase your home and this can create a very upsetting situation. However Settlement contingencies are much more widely utilized then sale and settlement contingencies and generally have less risk to the seller. But you definitely want to make sure that the buyer’s agreement of sale for their current home is a strong one and their buyers are well qualified. It is very difficult to get a “bridge” loan with the mortgage business therefore we are seeing many more home settlement contingencies.

If your home is new on the market and you and your Realtor feel it is priced correctly it may not be in your best interest to accept a home sale and settlement contingency. However if your home has been on the market for quite some time and your Realtor feels the buyer’s home can sell in a reasonable amount of time it may be worth the chance.

Again you should always have complete confidence in your Realtor and feel very comfortable asking them many questions and they in turn should be more than happy to take the time to listen to your concerns and questions and address them.

Questions can be emailed to Scott at ScottELangley@remax.net  More information can be found at www.ScottELangley.com

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