What is A Home Sale Contingency?

What is A Home Sale Contingency?

A home sale contingency is a clause in an offer that states the execution of the offer is only if the buyers home goes under agreement and successfully closes.

These contingencies are often times used by buyers when they are planning on using proceeds from the sale of their home to purchase the next one.

So, how does it work? It’s important to remember that a home sale contingency can be structured in Many different ways. But let’s say the buyer needs to sell 123 Main Street. The Home Sale Contingency will be in the offer that the buyer extends to the seller. The offer will be like any other offer with regards to price, deposits, inspections. The difference is that the actual execution & closing on the property is all based on whether the buyer’s home at 123 Main Street goes under agreement and closes.

If the buyers house at 123 Main Street goes under agreement by a specified date, then the contract moves forward. If it does not sell, then the contract is terminated and the deposits are released back to the buyer.

If you couldn't tell, these clauses are here to protect the buyer, not the seller and are only applicable to home buyers who want or need to sell a home Before they Buy a new home.

There are two separate types of home sale contingencies that are used at different times. These contingencies are the:

Sale and Settlement Contingency and just the Settlement Contingency

So, what’s the difference between the two and when is each correctly used.

If you are a buyer & your home has already gone under Agreement then you will want to use the Settlement Contingency. Simply put, this contingency protects the buyer should their sale fall through for any reason. If the buyers home closes by the specific date, the contract remains valid, if it doesn't close then the contract can be terminated.

A Sale and Settlement Contingency is for the homebuyers that has not received an accepted offer to purchase their current home or ones that haven’t even put their home on the market yet!

The offer will have a closing date that all parties hope to perform to as long as the buyers house sells. Generally speaking, there are specified timeframes built into the home sale contingency. As an example, a buyer may have a month to secure a buyer to purchase their house. Should the buyer not be able to find a buyer, then a seller has the right to extend of terminate the contract. If the contract is terminated, then the deposits would be returned to the buyer.

Now here is where we are going to go up a little in the weeds... You may have heard of a term called a "Kick out Clause''. This clause essentially helps mitigate some of the seller’s risk while putting a little pressure on the buyers.

How the kick out clause works is that the seller accepts the buyers offer. But the seller is then allowed to continue to Market the property looking for other potential buyers. Should the seller find a buyer that extends them an agreeable offer, then that seller must first go back to the original buyer and give them the agreed upon amount of time (which is normally 48 or 72 hours) to remove their home sale contingency.

Buyers should always want a home sale contingency without a kick-out clause. Sellers should always demand a kick out clause in any home sale contingency.

Those are the basics on what a home sale contingency is.

In our next videos we examine the pros & cons of the Home Sale Contingency from the seller side and then the Buyer side. There is a lot to think about before putting to use this home buying tool.

As I mentioned, I am Jeff Chubb with eXp Realty. I am here to answer any & all of your questions that you may have. You can reach me at 617-480-2600 or by email at [email protected].