Home Sale Contingency Clauses Prevent You from Being Stuck with Two Mortgages.
Protect Your Assets While Buying a Home
A Home Sale Contingency Clause in a purchase contract protects the potential buyer of a property from carrying two mortgage payments when they own another property that they are attempting to sell. In the offer phase, a contingency clause can delay the obligation to close on the property while the buyer’s current property remains on the market. The contingency clause typically provides an expiration date for an offer based on an expected sale of the buyer’s current property. In the event the buyer’s current property fails to sell within the designated time period, the offer to the seller is void. If the buyer’s home sells prior to the expiry date, then the ”home sale” contingency has been met, and the transaction moves forward.
3 Key Components of Home Sale Contingency Clauses
- Contingency clauses protect buyers selling one home to buy another and would be incorporated into the offer to buy.
- If a buyer’s property does not sell by a designated date, the offer is null and void.
- A contingency clause for an FSBO seller can provide assurance that your property sells before your offer on another property is binding.
Settlement Contingency Clause
A “settlement contingency” is a clause that enables the Buyer to make the finality and the timing of an offer dependent upon the closing of another property being sold by the Buyer. This would apply only in cases where the Buyer making the contingent offer was already under contract to sell their original property. A settlement contingency typically does not allow a Seller to accept other offers while the Buyer’s property closes or for a set period of time.
Sale and Settlement Contingency Clause
A “sale and settlement contingency” clause is appropriate in cases where the Buyer making the contingent offer is also attempting to sell another property. Since the Buyer has not yet secured an acceptable offer on their other property, sale and settlement contingencies typically permit the Seller to accept offers from other potential buyers . If the Seller receives a suitable offer from a different buyer, the initial Buyer will typically have the opportunity to waive the contingency and/or otherwise modify their offer in an attempt to maintain first position. sale and settlement contingency including matching or beating the additional buyers offer. If the buyer is unable to remove the contingency, the buyer’s offer becomes null and void. Sale and settlement contingencies often come with earnest money that is returned if the buyer cannot execute the clause because their home has not sold.
How Contingencies Help & Hurt FSBO Sellers
Contingency clauses can impede an FSBO Seller in the process to sell your home while you wait for a buyer to settle and close on their property. A few things an FSBO Seller should do before accepting a contingency clause:
- Review the buyer property. Is it listed in real estate marketplaces?
- Is it listed to sell or are comparable homes in the neighborhood selling faster or slower?
- Assess the time on market for the neighborhood – if the time on market is long, you may not want to accept the contingency offer if it will delay the sale of your home.
- Is the property listed with a real estate agency or FSBO?
- A Real Estate agent may move quickly in the market to get the buyer’s property sold and commissioned.
- An attorney might take more time with other work that could delay the sale of your home.
- A “kick out” clause can also be added to contingency clauses that gives the buyer a certain number of days to sell their property and if not, they have a certain amount of time to remove the contingency clause or their offer is null and void.
A contingency clause can benefit FSBO buyers if your property is not selling quickly at the market price. If your market is slow or your listing has been up for a number of days, a contingency might benefit you.
Contingency Clauses are there to enable buyers and sellers mutual time to sell and acquire properties. Talk to an attorney about the clauses and make sure you include the right language that helps your property sell in the market.
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