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Contingency Sales Contracts

You want to buy a house, but first you need to sell your house. You’d like to sell your house, but don’t want to be left without any house at all. Or, maybe you want to sell your house and don’t want to get stuck with the first offer that comes along. These are seemingly catch-22 scenarios, but there’s a special tool to help you out of such struggles: the contingency sales contract.

What Are Contingency Sales Contracts?
“Contingent” simply means that one thing will happen dependent upon another event taking place first. A home inspection is an example of a contingency contract, in that a buyers’ completion of a home purchase is contingent upon the property in question passing inspection. If the property fails inspection, the buyers are freed from their purchase obligation and get their deposit monies refunded.

A contingency sales contract lets buyers and sellers agree to a transaction contingent upon another property being bought or sold. This works to the advantage of both parties: the buyer puts down an earnest money deposit and “gets dibs” on a house while waiting for his current property to sell; the seller gets a secured buyer, yet is free to show the home to other prospects and perhaps even sell it to another buyer.

What Happens if the Seller Gets Another Offer?
Details can vary depending upon what terms all parties mutually agree upon, but generally, if a new offer comes in on the reserved property, the contingent buyer gets a first right of refusal to either move ahead on the purchase or relinquish the contingency hold with no deposits lost. Such contracts usually contain what’s called a “kick-out” clause to ensure the contingent buyer either acts on the purchase (even if his own home has not yet sold) or releases the contract within 48 hours after a new offer is made on a property. This allowance gives sellers the flexibility to accept better offers, should they come along before the buyer’s home sells.

Are There Drawbacks?
Fewer buyers consider a house with a contingency agreement on it, and contingency buyers may see their “reserved” house sell to another party just days after securing the agreement. Still, contingency sales contracts have gained momentum in today’s slow-selling market because, overall, it’s a win-win for both parties. Buyers get to reserve a home without having to juggle two mortgages, and sellers have the security of a known buyer, with the freedom to exercise the kick-out clause if needed. While it’s not a method typically employed in healthier housing markets, the contingency sale contract is an effective tool that can help both buyers and sellers reach their goals.

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