contract with home sale contingency clause

annandaleMarch 22, 2007

We are selling our home and have received an offer at an acceptable price, but with a home sale contingency. The buyers are offering a kick-out clause, but we do not think this will be adequate. According to our realtor, if our listing shows as under contract with kick-out clause, we will lose 95% of potential purchasers who will not bother given the oversupply of homes. We do not want to effectively take our home off the market during the prime two spring months for a very contingent offer. The potential buyers haven't even listed their house yet.

Our realtor has suggested that we may be able to sign the contract, but insert a clause giving us the right to continue to market the house as "active." We could accept any other offer, and would not give the buyer the right of first refusal. We would notify the buyer of the other contract, and give them a short period to remove their contingency or submit a better offer. In essence, we would have a contract that would not be binding until and unless the buyers remove the home sale contingency clause or get a contract to sell their home.

Has anyone done something similar? Any suggestions?

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"..and would not give the buyer the right of first refusal"
Why not? As a buyer with that statement I would walk.

    Bookmark   March 22, 2007 at 12:58PM
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we will lose 95% of potential purchasers who will not bother given the oversupply of homes

in this sort of market, do you want to lose the buyers you DO have?

I can see your concern--they'll be selling their house in the same oversaturated market you're selling in, and it might take them a while. But still, they want to buy your house at a price you like.

But berniek's comment is right. At that point, you don't have a contract that means squat for the buyer. You aren't committed in any way; they might as well simply not sign with you at all. They can put their house on the market, and come back and see if you're still around once they have a buyer. It would have the same effect for them.

Given that there's an oversupply of homes out there in your market, I wouldn't sign that. I'd just say, OK, we'll check w/ you, and if you've sold to someone else, we'll buy some OTHER home, since there are so many.

but..your two comments are conflicting:
"We could accept any other offer, and would not give the buyer the right of first refusal"
"give them a short period to remove their contingency"

giving them a short period to remove their contingency IS a right of first refusal, sort of. Giving them a short period to remove their contingency IS a "kick-out" clause!!!!

I don't get the "submit a better offer" part, though--if they offered you more money, you'll stick with them even with the contingency?

It's quite common for contracts with a home-sale contingency to also include a clause that says, "we get to keep the house on the market, and if we get another offer, then you have to either remove the contingency (and buy the house for the preagreed price), or you have to release us from the contract so we can sell to the new person." That *IS* a kick-out clause.

But there's usually no changing of the price, I don't think. And sometimes there are restrictions on the new offer. And usually you cannot actually, legally, *accept* the other offer UNTIL your first contract has been voided.

Perhaps the only difference between what normally appens, and what you're proposing is that you want the right to continue to list the house as "active." But is that even under the buyers' control?

Isn't it up to your realtor how your home is listed on the MLS? Are there requirements that dictate how a home must be listed on the MLS? And if so, isn't that a requirement of the MSL, and not of the buyers? If so, then probably ANY contract would require your realtor to make a note of it on the MLS.

I wonder if your fears might be alleviated if you find out what their selling strategy is, etc., for their own house. If you knew they were selling in a hot neighborhood, or their plan was to offer the house at slightly below comps, that might make you feel they would get a fast sale.

    Bookmark   March 22, 2007 at 1:31PM
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As I was preparing to market my last a home, a colleague became interested. Although he could have carried both mortgages, he did not want to take the risk. We agreed in principle to price and other terms. We signed a contract contingent on the sale of his home, but there was quite a kickout clause--we could continue to market the house and could accept another contract without providing any advanced notice to him. While it may sound harse, recall that his income would have allowed him to move ahead with the purchase at anytime. That was late summer, and another contingent buyer (#2) quickly agreed to the same terms. But neither sold their home. Buyer 2 droped out after 90 DOM. Early the next spring my still interested colleague was still marketing his home, and we got a 3rd contingent offer. They agreed to the same no notice kickout. Why? Better to be tied for first place than is second place behind the original offer. Finally, as April brought in real spring weather, and we got a strong non-contingent offer. That 4th couple got the house. My former colleagues house sold that month, too; I wonder if he is sorry he let my house get away.

So, under the right circumstances, some potential buyers will accept an agreement in principle without notification. I don't know if this is the right tact for the OP, though.

After that experience, I understood why one agent called home sale contingent offers "non-offers." As a seller, you get your hopes up, but the deal can drag on painfully. It is a hard decision to make. You may want to ask the sellers current address, proposed price and marketing plan. That may help you and your realtor determine how likely they are to sell in a timely fashion.

    Bookmark   March 22, 2007 at 9:06PM
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My house is currently for sale and my agent has kept it on the market as "active" in the MLS. The agent notes that consumers don't see says "under contract, backup offers wanted". I wouldn't recommend the clause I have, but would keep it just as active and only let the agents know when they have an offer (if that's possible). I think you could accept the offer with a 72 hour kick-out clause and the right to continue to market your house. You can write that in your counter. It's easy.

    Bookmark   March 22, 2007 at 11:18PM
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First, thanks to everyone who responded.

The problem with the standard "kick-out" clause is that our realtor believes that it will eliminate 95% of potential purchasers who will not want to look at a house that may already be taken, or who do not want to get into a bidding war. I don't know if this is accurate, but it makes some sense to me. In our case, the people buying our house have not yet put their house on the market, so we are not willing to drastically curtail our market for such an iffy proposition. If we were in the middle of November or getting no traffic or interest, then a home sale contigency might be more acceptable.

As to the right of first refusal, we would not be comfortable marketing a house as "active" if we have given a previous buyer the right of first refusal. As a buyer, I would not want to make an offer on a house and then learn that there was a preexisting primary offer. Talley Sue is correct that we and our realtor have to carefully look at the listing requirements.

As to whether this makes any sense for a buyer to agree to, remember, the buyer could take away our right to sell to others at any time by removing the home sale contingency. Thus, the buyer has much more control over the contract than the seller, who has little or no say over whether the buyer actually sells her home. Additionally, many buyers can obtain bridgefinancing if they are truly interested in buying a home.

As seller, we would have an incentive to notify the contingent buyer that we have received another offer, and give them a short period to remove the contingency or otherwise compete on equal footing with offer # 2. But they would have no priority over buyer #2, so it is not actually a right of first refusal.

Thanks to quip for sharing his/her experience. One question: what does "OP" stand for, and did you consider giving the contingent buyers notice of subsequent offers as they came in? Thanks.

    Bookmark   March 23, 2007 at 11:01AM
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OP= Original Poster

    Bookmark   March 23, 2007 at 11:20AM
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In our markets, most agents will not show a house with sale clause; it only pisses off buyers to find out the house they love is sold. That being said, the house we just bought, the vendor's agent never told my agent UNTIL we were putting in an offer about the standing offer. It infuriated me and my agent to hear this. The reason is, we lost all bargaining power as all the vendor had to say was, "well I am sitting with an offer of XXX dollars so why would I take your offer $5K less?"

However, if its a hot property/hot market, the agent will still show if their buyer understands the situation. We sold a house this way and got $10K more than first offer. The buyers were ecstatic to get it for that.

    Bookmark   March 23, 2007 at 12:07PM
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I can certainly understand the reluctance to accept contingency offers IF it takes your house off the market. That would be a show stopper for me also. However, subsequent buyers could in fact 'beat the offer' with an offer without contengencies making the original buyer remove theirs or lose the deal. Pretty simple actually.

I am in fact currently in such a situation as a buyer. I have a contract on a house contingent on selling mine. Their realtor is still actively marketing the house, to include Open House and running ads in the local paper. They have a 48 hr kick-out clause.

Because the contract calls for a NLT closing date, I am somewhat limited in being able to accept similar offers on my currrent house. My realtor knows this and implicitly steers potential such buyers away. That is my call as we are totally focused that house and if we lose it, sobeit.

    Bookmark   March 23, 2007 at 12:41PM
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As seller, we would have an incentive to notify the contingent buyer that we have received another offer, and give them a short period to remove the contingency or otherwise compete on equal footing with offer # 2.

I don't understand how this is NOT a right of first refusal?????

I just don't see how, logically, this works.

    Bookmark   March 23, 2007 at 1:18PM
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I agree with Talley Sue on this one. Why would I, as a buyer, sign such a contract? If I decided I wanted to move & purchase the OP's home...I would just list mine & if it sold then I'd make an offer if the home was still available.

My reasoning, in this market, would be that by the time I sold mine...if yours was still on the market then I could, probably, offer a lesser amount that you would accept. If the house was no longer on the market then I wouldn't have gotten it anyway. So, I'd just tell you, "Fine, you continue to market & if we sell and IF we're still interested in your house we'll make an offer."

There's an emotional factor here as well. If I believe I've purchased a new home that I love then it's likely I'm highly motivated to sell my existing home. If I've got a contract that really doesn't commit the seller then I'm naturally going to curtail my excitement about purchasing your home so as not to end up too disappointed if I don't get it. Buying a home can often be an emotional decision. I believe it's very likely that your potential buyers would lose their enthusiasm for your house after a couple of weeks and, maybe, even develop a case of buyer's remorse.

It's very hard to have it all your way. There needs to be an incentive for the buyers to get their house sold. If they don't feel they even have a chance at yours...I really think their enthusiasm level is going to drop dramatically & they'll walk...if not now, then in a couple weeks. There's just no reason in what you're suggesting to keep them emotionally charged to buy your house.


    Bookmark   March 23, 2007 at 2:58PM
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could you structure your contract, and the sequence of events, so that all OTHER contingencies that could derail the deal --inspection, etc.-- are satisfied before the place comes off the market? Fast?

Maybe financing would be a problem to get it locked down befor ethe sale of their house, but perhaps info like their credit rating, or whatever is appropriate for them to prove to you that they can get a mortgage, would help assuage your worries.

and then the ONLY contingency is the sale of their house, and they're pretty much committed then. They kind of can't back out unless their house never, never sells (and you should have a "if it doesn't sell by this date, we can get out if we want")

in NYC, contracts on co-op apartments are not even signed until AFTER the inspection of the property and the review of the co-op's bylaws and finances.
So maybe you could follow that model more closely.

Also, we placed an offer to buy contingent on our sale, and we never sold. BUT...when it became clear our sale was going to take a long time, we negotiated an incentive for the seller to wait (we covered their maintenance costs, which is sort of the equivalent of a nonrefundable deposit of $4,000)

    Bookmark   March 23, 2007 at 4:29PM
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annandale, the potential buyers and their agents, if applicable, were all kept informed as much as possible. The potential buyers with home sale contingencies were told to be sure to check with us if they got an acceptable offer on their own home. As I knew him, my former colleague had the most info, and we exchanged emails regularly. I told him a noncontingent offer was coming in, but waited days to react. Perhaps he thought I was bluffing :(.

    Bookmark   March 23, 2007 at 6:03PM
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Thanks to quip and others for your input.

As a follow-up, our home sale contingent buyers and I have agreed to part ways. Perhaps this is for the best. This will give the potential buyers time to get their house on the market and test their price, which our realtor says is grossly overpriced. We have just reduced our price and hope that April will bring additional non-contingent offers. Time will tell.

    Bookmark   March 29, 2007 at 3:50PM
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st their price, which our realtor says is grossly overpriced.

this is part of the equation, I think, and you were smart to have it be as big a factor as it did.

Good luck!

    Bookmark   March 29, 2007 at 7:15PM
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As a Realtor I rarely see contracts with a home sale contingency clause work out. I've written a lot of them, I've spent months of my life negotiating them and usually all they do is waste the time and emotions of everyone involved.

As others here have stated it's basically a non-offer which can actually hurt your chances of finding a buyer. If the house is truly under contract it must be noted as such in the MLS. What Realtor wants to show a home that is already under contract? Most Realtors only make money when a home sells. We don't make a dime for driving people around showing them homes that are already under contract.

As others here have noted "buyers remorse" can often kick in and the buyer may "change their mind" about the offer they made. With a contingency based on the sale of their own home they are more or less free to back out at any time.

I do however like the idea of a non-refundable deposit and time limits but in a buyers market it can be difficult finding a buyer willing to sign such a contract with so many other home choices available.

Thanks for the lively discussion here. I'm actually in the process of deciding whether or not to write up such an offer for a buyer or just tell him to wait till his own home is under contract and then write a real offer.

    Bookmark   January 12, 2009 at 8:26PM
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