Contingent sale offers: how to keep everyone happy

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Contingent sale offers: how to keep everyone happy A look at release clauses, time limits Monday, January 16, 2006 By Dian Hymer Inman News

As the home sale market turns from a strong seller's market to a more normal market, we're bound to see an increase in offers that are contingent on the sale of another property. 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. Keep in mind that an offer made contingent upon the sale of another home still is unlikely to work in markets where the inventory of homes for sale is low and where buyer demand remains high. Prime candidates for a contingent sale offer are listings that have been on the market for a while or listings in areas that are bloated with inventory. 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.