Real estate contracts subject to a home sale contingency can be risky for sellers. Real estate contracts subject to a home close contingency can be even riskier.
If, as a seller, your real estate contract has a home sale contingency in it, your buyer has a specified period of time to get her own house under contract. If during the specified period the buyer does not get a contract on her house, you do not have a contract on your house either.
If the contingency is dependent upon your buyer's deal for her house closing, a home close contingency, it is even riskier. Until your buyer has sold her house and the deal has closed she can give you notice and cancel the contract.
I recommend that if you accept a contract subject to a home sale or home close contingency, you continue to actively market your house. It is also a good idea to learn as much as you can about the house your buyer is selling: If it is already on the market; and, if so, how long has it been on the market. Check to see that it is priced appropriately. Also, if it is listed with a real estate agent, ask your buyer if you can talk to her agent. An experienced agent, especially one who has been through slow markets before, should have some insight as to how long it will take to sell.
If your buyer has already sold her house, but it has not yet closed and you have a home close contingency in your real estate contract, you should ask your buyer about her buyer and how secure her deal is. In today's tricky mortgage market, you need to be careful not to base your deal on a house of cards. If your buyer's deal is solid yours should be too.
This might also be a good place for you to check with a real estate lawyer to help protect you.
NOTE: Contracts with home sale or home close contingencies should include a kick-out clause. This way if you get another offer, the buyer has a specified (in the contract) number of hours, say 24 -72 after you notify her, to remove the contingency or your contract with her is void. (In any type of contractual situation where a contract is to be voided or canceled, always pay close attention to the notice provisions for notifying the other side. If the contract specifies that the notice has to be in writing, it has to be in writing.)
REMEMBER: If your buyer decides to remove the contingency, be sure to get documentation from her lender that she has qualified for a bridge loan or some other satisfactory assurance so that she will be able to close the sale. Make sure the lender is solid. Today, even formerly solvent lenders are having liquidity problems, assuming they are still in business.
© 2007 Complete Books Publishing, Inc.
