Like it or not, home sellers should be prepared to take a home sale contingency from a willing, ready and able buyer. In the boom years, real estate agents, home sellers and relocation companies all nixed a buyer who wanted to make a home purchase contingent on the sale of their current home. Now though, buyers need to sell their current home to tap the equity in it, to purchase their next home. With stricter mortgage underwriting guidelines resulting from heavy loess’s in the sub-prime mortgage market, all loan commitments will be conditioned on the sale of a buyer’s existing home in 2010.
Not all buyers and real estate agents understand the terminology relating to home sale contingencies. And, not all home sale contingencies are created equal. Wording, timelines and motivation to sell, are all important ingredients in assessing the ins and out’s of a home sale contingency. Here are some basic contingency clauses that every home seller should be familiar with.
Home sale and closing clause. The buyer needs to procure a binding purchase contract from a prospective buyer and have it successfully close. It’s a two-step contingency, with more risk for a home seller than other contingency clauses. Plus, if the buyer has not even placed their current home for sale when the clause was inserted into a purchase contract, the timeline to market, sell, and close their existing home is longer than if they already have it on the market.
Home closing. Many sellers don’t realize that some buyers understood they needed to sell their home before buying another. Savvy buyers in today’s market get their home under contract and out of major contingencies (i.e. inspection, attorney review, and appraisal) and then write a purchase contract on a new home with only a successful home closing contingency. This type of contingency presents much less risk to a home seller than a home sale and closing clause.
Kick-out clauses. One important part of a home sale contingency is the right of the seller to entertain other purchase offers from other buyers after written acceptance of purchase offer which includes a home sale contingency from buyer A. While buyer A, has written acceptance of a purchase offer with a home sale contingency is first in line with a home seller, the seller who has included a kick-out clause in the home sale contingency, has the right to receive other offers on their home, and if an offer comes in with terms that are more attractive to the seller, the seller can go to the buyer they are under contract (buyer A) and say you have so many hours to release the home sale contingency of we will nullify the purchase contract. This is called a kick-out clause. And in most real estate markets it is for 24, 48 or 72 hours. An example: A buyer has submitted a contract with a home sale contingency with a 24-hour kick-out clause. The buyer then has 24 hours after receiving notice from a home seller to either remove the home sale contingency and proceed forward with all other terms of the contract, or void the contract and allow the seller to move forward with buyer B.
What sellers should consider before accepting a home sale contingency.
Is the buyer’s current home priced correctly? If potential buyers of your home, need to sell theirs in order to buy yours, they should a realistic opinion of it’s value and priced to reflect today’s market values. Many buyers feel they need to get “X” out of a property, while the market value is “Y”. Buyer’s should solely be using sold comparable’s to price their current home, from only from the last six months, and preferably only from the last three months.
Is the buyer’s current home being actively marketed? If buyers wants you to accept their purchase offer that includes a home sale contingency, verify that their home is being marketed on the Internet, in print publications and is easily available to be shown to prospective buyers.
Is the buyer’s home typical for it’s market? If your buyers own a contemporary home in a subdivision of colonials, think twice before moving forward with a home sale contingency. White elephant homes take much longer to sell, than those that appeal to the majority of homebuyers.
Once typical in the pre-boom years, home sale contingencies went away in over-heated markets. But, if you’re looking to sell your home in a transitioning market, you should be able to weigh the pros and cons of a purchase offer that includes a home sale contingency.