Sale of Buyer’s Home Contingency Becoming More Frequent in San Carlos

bobbredel Uncategorized Leave a Comment

For the better part of the last ten years in the San Carlos real estate market the thought of accepting an offer contingent on the buyer’s successful sale of their current residence would have been laughed at……not any more.  Our flat market has opened the door for the once dormant clause to slowly make its way back into negotiations.  The clause can take several different forms and is entirely negotiable, but here it is in a nutshell:  The buyer offers to purchase the seller’s property, however, the buyer’s obligation to complete the purchase is only mandated once buyer’s current property has sold.  Below are the pros and cons for buyers and sellers who choose to deal with this contingency:

Buyer-Pros

(1)  Buyer gains comfort from the fact that if their previous residence does not sell, they are not on the hook to complete the purchase with the seller.

(2)  Buyer is relieved from having to take some risk in possibly carrying two mortgages at once.

Buyer-Cons

(1)  As long as the seller is not totally asleep at the controls they are going to insist on some type of release clause.  A release clause built into a Sale of Buyer’s Home Contingency would read something like this:  Seller accepts buyer’s offer with the contingency which will allow the buyer to first sell their current home, however, should seller receive another offer they wish to accept while buyer is trying to sell their current home, seller will be able to give the buyer 72 hours notice to either remove the contingency and close escrow as previously agreed or back out of the contract entirely, without prejudice.  This can be somewhat stressful for a buyer especially if the buyer’s home is not yet in contract.  Buyer could have theoretically taken all steps necessary to put their home on the market and suddenly be met with this decision.

Seller-Pros

(1)  The Sale of Buyer’s Home Contingency is a very useful tool to help give some comfort to a buyer in uncertain times.  It essentially minimizes their risk, which should, in theory, help persuade the buyer to enter into the contract with the seller.

(2)  Sellers can minimize their risk in clauses such as these by insisting on a release clause similar to the one discussed above.

(3)  Sellers can continue to market their property, including advertising and open houses.

Sellers-Cons

(1)  Sale of the buyer’s property is not certain.  The seller could be wasting valuable market time if the buyer is unable to sell their home in the agreed upon amount of time.

(2)  While the seller can continue to market the property,  the fact of the matter is that the seller’s audience will be severely limited because the realtor will need to switch the property to a Pending status.  The property will no longer be advertised as Active through the local MLS sites.  Even though the particular pending status will indicate that the property does have a release clause, many buyers and realtors will not view the property because they feel that the odds of obtaining the property will be a long shot, should they have interest.

Finally, I want to emphasize that the Sale of Buyer’s Home Contingency is a great tool which can be used to bridge together a deal that may not otherwise happen.  However, all buyers and sellers should realize that this clause can take many different forms and is entirely negotiable.  Careful consideration and drafting should be applied when dealing with this contingency.

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bobbredel