What is a home sale/buying contingency?

In real estate, a “home sale contingency” is a condition included in a purchase agreement that makes the sale of a property contingent upon the buyer successfully selling their current home. This type of contingency can be crucial for buyers who need to sell their existing home to afford a new one. Here’s a detailed breakdown of what a home sale contingency is, how it works, and its implications for both buyers and sellers.

What Is a Home Sale Contingency?

A home sale contingency is a clause in a real estate purchase contract that requires the buyer to sell their current home before they are obligated to buy the new property. It protects buyers who need the funds from the sale of their current home to complete the purchase of a new one.

Types of Home Sale Contingencies

  1. Standard Home Sale Contingency

    • What It Is: The purchase of the new home is contingent upon the successful sale of the buyer’s current home.

    • How It Works: If the buyer’s home doesn’t sell within a specified timeframe, the buyer can back out of the contract without penalty.

  2. Home Sale and Settlement Contingency

    • What It Is: The contract is contingent upon not only the sale but also the settlement of the buyer’s current home.

    • How It Works: This contingency requires that the buyer’s home is sold and the sale is finalized before the buyer must proceed with the new home purchase.

  3. Home Sale Contingency with a Kick-Out Clause

    • What It Is: The seller retains the right to continue marketing the home and accept other offers.

    • How It Works: If the seller receives a better offer, they can "kick out" the buyer, giving them a specified period to either remove the contingency or back out of the agreement.

  4. Home Sale Contingency with a Right to Rescind Clause

    • What It Is: This contingency allows the buyer to back out of the purchase if they can’t sell their home.

    • How It Works: The buyer has a period during which they can rescind the offer without legal or financial repercussions.

How Home Sale Contingencies Work

For Buyers

  1. Submit an Offer

    • What to Do: Include a home sale contingency clause in your offer to the seller.

    • Why It Matters: This clause ensures that you can back out of the purchase if your current home doesn’t sell.

  2. **Meet Contingency Requirements

    • What to Do: Make diligent efforts to sell your current home, such as hiring a real estate agent and staging the home.

    • Why It Matters: Fulfilling this requirement is necessary to keep the purchase of the new home on track.

  3. Negotiate Terms

    • What to Do: Work with your real estate agent to negotiate the terms of the contingency, including deadlines and conditions.

    • Why It Matters: Clear terms can prevent misunderstandings and protect your interests.

For Sellers

  1. **Evaluate Offers

    • What to Do: Consider the risks and benefits of accepting an offer with a home sale contingency.

    • Why It Matters: A contingent offer means there is a chance the deal may fall through if the buyer’s home doesn’t sell.

  2. **Review Contingency Terms

    • What to Do: Examine the details of the home sale contingency, including timelines and conditions.

    • Why It Matters: Understanding the terms helps you assess how likely the buyer is to fulfill their obligations.

  3. **Consider a Kick-Out Clause

    • What to Do: If you’re concerned about the contingency, negotiate a kick-out clause.

    • Why It Matters: This clause allows you to accept other offers if they come in.

Pros and Cons of Home Sale Contingencies

Pros for Buyers

  • Financial Protection: Ensures you don’t buy a new home until you’ve sold your current one.

  • Reduced Risk: Protects you from owning two homes simultaneously.

Cons for Buyers

  • Less Competitive Offers: Offers with contingencies can be less attractive to sellers compared to non-contingent offers.

  • Potential Delays: The sale of the new home is dependent on the sale of the buyer’s current home.

Pros for Sellers

  • Security: Provides a clear path to the sale of the home.

  • Negotiate Better Terms: A well-crafted contingency clause can protect against the risk of the deal falling through.

Cons for Sellers

  • Increased Risk: The sale is dependent on the buyer’s ability to sell their home.

  • Possible Delays: The process may be delayed if the buyer’s home sells slower than expected.

Example Scenarios

  1. Scenario 1: Buyer’s Home Sells Quickly

    • Outcome: The buyer’s home sells within the agreed-upon timeframe, and they proceed with the purchase of the new home.

  2. Scenario 2: Buyer’s Home Doesn’t Sell

    • Outcome: If the buyer’s home doesn’t sell, they may choose to back out of the deal, and the seller may continue to seek other buyers.

  3. Scenario 3: Seller Receives a Better Offer

    • Outcome: With a kick-out clause, the seller can accept a new offer, and the buyer must decide whether to remove the contingency or walk away from the deal.

Kevin Woo