Contingent Contracts for Finding a New Home

How To Write a Contingency Into Your Buyer's Offer to Purchase

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Sellers write contingencies into counter offers more often in seller's markets than in buyer's markets. But it's not uncommon to see a seller ask a buyer for the right to find a replacement property before fully committing to the purchase agreement.

Many sellers worry that if they sell their home without finding a new home right away, they might end up putting belongings into storage and renting. Or worse, sleeping under a freeway bridge next to a stolen grocery cart.

It's an emotional time for sellers, separating themselves from the past and looking into an unknown future. In some ways, selling and buying a home is like child birth. If all women could clearly recall what they went through to give birth, there might be fewer children in the world.

Contingent on Seller Finding Replacement Home

Depending on specific local real estate law and custom, some contracts will contain a single line making the transaction contingent on the seller finding a replacement home. The problem with that, from a buyer's point of view, is such a clause could allow the seller to cancel the transaction at any time, even on the day it is scheduled to close. Few buyers would accept those terms if they knew what the clause meant.

I've written purchase contracts when selling my own homes that specified: "This offer is contingent upon closing concurrently with the purchase of the seller's new home." That type of language is vague, open-ended and I can't believe that buyers and their naive agents have agreed to it.

After all, I didn't name the property, its address or give a closing date because there was no property at the time the contract was signed.

Buyers are entitled to some protection. What happens if the seller can't find a suitable new home? Is the buyer out in the cold? Here are terms that protect both parties in the purchase contract:

Make it Clear the Contract is Contingent

State that the offer is contingent on the seller signing a purchase agreement to buy a replacement home. Sellers should receive a reasonable amount of time such as one to three weeks to find a new home, at which time, it is expected that the seller will withdraw the contingency or cancel the contract.

If the parties cannot agree on a contingent contract, the seller's best options are to either reject the offer or ask for much longer closing period such as 60 to 90 days.

Specify Time Period for Other Contingencies

Determine the day the clock starts ticking on other contingencies in the contract such as home inspections, lead-based paint inspections, pest inspections, approval of CC&Rs and so forth, because obviously the clock should not start until the seller has removed the contingency to buy another home.

Real estate contracts, by federal law regarding lead-based paint, give the buyer 10 days to inspect. Some inspection periods are longer. The specified day that an inspection period begins can be, for example, the day after the seller removes the contingency or any other mutually agreed upon day.

Extension of Closing Date

Come to an agreement on the right of the seller to extend the closing, if necessary.

Both parties might sign a contract with a 30-day close, but if it takes the seller 10 days to find a new home, the seller might want the right to extend the closing date by another two weeks. Primarily the reason for an extension is because it might take a full 30 days for the seller's new mortgage to fund.

Discussing these points upfront, and reaching a mutual understanding that is expressed by putting all the terms in writing, will save all parties a major headache in the long run.

If you desire more specific information, please contact a real estate lawyer.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.