Contingent Contracts for Finding a New Home

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Sellers write contingencies into counteroffers 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, they may find themselves homeless. It's an emotional time for sellers.

In fact, in 2019, 36% of people who went through the home selling process say the experience left them in tears at one time or another—and of those who who did shed a tear, 20% did so at least five times.

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 that such a clause could allow the seller to cancel the transaction at any time—even on the day the home is scheduled to close. Few buyers would accept these terms if they knew what the clause meant in advance.

Both buyers and sellers are entitled to protection. Here are terms that protect both parties in the purchase contract.

Make It Clear the Contract Is Contingent

It's not the case that buyers will always require that their offer on a home come with contingencies, and not all sellers will accept contingencies on offers placed.

If an offer on a home is contingent on the seller signing a purchase agreement to buy a replacement home, that must be made clear. Sellers, for example, should receive a reasonable amount of time, such as one to three weeks, to find a new home.

These time frame contingencies vary by state. But, typically, the contingency period will last anywhere between 30 and 60 days.

By the set 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 a 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 covenants, conditions, and restrictions (CC&Rs)—because, as you may already know, 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 can take longer. For example, the specified day that an inspection period begins can be 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 terms in writing will benefit all parties 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.

Article Sources

  1. Zillow. "More Than a Third of Americans Cry While Selling Their Home." Accessed Feb. 16, 2020.

  2. Law Office of Yuriy Moshes. "Mortgage Contingency Clauses in Real Estate. Full Guide (Updated)." Accessed Feb. 17, 2020.

  3. The Department of Housing and Urban Development. "Guidance on the Homebuyer’s Option to Test for Lead-Based Paint and Lead-Based Paint Hazards," Page 1. Accessed Feb. 16, 2020.