Frequently included in real estate contracts, a home sale contingency is a clause put in place to make the transaction of sale of a buyer’s home contingent or dependant. The contract can only move forward if the buyer’s house is sold by a specific date or gets terminated.
Types of Home Sale Contingencies
Home sale contingencies are of two types, namely:
Sale and Settlement Contingency –
The sale and settlement contingency involves the selling and settling of a buyer’s existing home. It is put to use when the buyer is unable to sell the house, has not received an offer or accepted one for purchase of the home, which allows the seller to continue marketing the home to potential buyers.
If the seller gets another offer, the buyer is given a time period of about 24-48 hours to remove the contingency, failure of which leads to termination of the contract. In this situation, the buyer gets back his/her earnest money deposit and the seller is free to accept another offer he/she had received.
Settlement Contingency –
Settlement contingency is used when the buyer is done marketing the property, possesses a contract and a settlement date. Property is not essentially sold until the settlement or the closing. The settlement contingency protects the buyer as it prohibits the seller from accepting any other offer on the home for a certain period of time. The contract is terminated if the house does not close by the specified date.
Things to Consider for Buyers and Sellers
When buyers are selling their current home and buying a new one, a home sale contingency is helpful as it gives them time for the transaction, keeps their new home secured and helps them avoid holding two homes at the same time and having to pay expenses for both.
Although it brings peace of mind to the buyer, money still needs to be spent to acquire the new home which includes bank charges, home inspection and appraisal fees. Also, for the seller it is a gamble as the seller is relying on the buyer’s ability to sell the current home and therefore, the buyer has to pay more to offer the contingency in order to compensate the risk.
Sellers can continue to market the home for more offers, but with this contract in place the home is listed as under-contract which makes it less appealing to other buyers. Potential buyers may not want to check out the house as there are less chances of acquiring it. Therefore, the seller is at risk of losing buyers while the home the buyer wants to sell first may never sell or take much longer than planned wasting significant time and adding to the worries.