A home sale contingency is one type of contingency clause which is often included in a real estate sales contract or an offer to purchase real estate. The clause states that the transaction is dependent (or contingent upon) certain circumstances – usually the sale of the buyer’s home.
Many people start looking for their ideal home before their own has sold. If they find their dream house, they will usually make an offer on it so it doesn’t slip away. However, they will be depending on the money they get from selling their home in order to buy the new home. With a sale contingency clause, they would stipulate a date by which they would be able to sell their own home, so the sale would move forward. If the house does not sell by that date, the contract will be terminated and the seller will be free to sell to another party.
A sale contingency is dependent upon the buyer selling an existing home and getting the money to then pay for the new home they are interested in. The buyers home could already be on the market and already in escrow, or perhaps it is new on the market with no offers or the buyers has yet to started the process of listing their home.
If the seller accepts the sale contingency, the prospective buyer would then have a certain period of time, typically 17 days unless noted, to enter into escrow on the sale of their home or terminate the contingency clause so the seller could proceed with the sale with another buyer. The buyer would then get their earnest money back and they would no longer have the option to buy the house.
The Reasons for Contingency Clauses
Contingency clauses are invaluable for buyers because they can avoid owning two homes and holding two mortgages at one time while waiting for their own home to sell. A home sale contingency also means they can move from one home to the other right away, rather than selling their home and then trying to find a place to live until their new home is ready.
The downside is that some sellers don’t want to wait until the potential buyers home sells, but this is where the real estate agents come in. If the buyers property is sought after and priced well, it generally will enter into escrow within the time frame allotted. Accepting a sale contingency can be risky, because it is dependent on the sale of the buyer’s home and that deal could fall through, so make sure to talk to your agent and look at all the scenarios.
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