What Is a Sale Contingency?

What Is a Sale Contingency?

A home sale contingency is one type of contingency clause which is often included in a real estate sales contract or an offer to purchase real estate. The clause states that the transaction is dependent (or contingent upon) certain circumstances – usually the sale of the buyer’s home.

Many people start looking for their ideal home before their own has sold. If they find their dream house, they will usually make an offer on it so it doesn’t slip away. However, they will be depending on the money they get from selling their home in order to buy the new home. With a sale contingency clause, they would stipulate a date by which they would be able to sell their own home, so the sale would move forward. If the house does not sell by that date, the contract will be terminated and the seller will be free to sell to another party.

There are a couple of things to keep in mind when writing contingency clauses. The first is that there are two types of home sale contingencies.

Sale and Settlement Contingency

A sale contingency is dependent upon the buyer selling an existing home and getting the money to then pay for the new home they are interested in. This clause is appropriate if the buyer has not yet received an offer on their existing home, or has not yet accepted it.

This type of contingency clause will usually allow a seller to continue to market the home to other potential buyers. The prospective buyer would then have a certain period of time, such as one or two business days, to either move forward with the sale or terminate the contingency clause so they seller could proceed with the sale with another buyer. The buyer would then get their earnest money back and they would no longer have the option to buy the house.

A settlement contingency is used if the buyer has already marketed their property, found a buyer, and has a scheduled settlement date by which the sale will be closed. However, things can go wrong at the last minute when it comes to buying and selling a house. This clause protects the buyer if the sale falls through for any reason, because it prohibits the seller from accepting other offers on the house for a certain period of time. If the settlement does not occur on the specified date, then the contract would come to an end.

The Reasons for Contingency Clauses

Contingency clauses are invaluable for buyers because they can avoid owning two homes and holding two mortgages at one time while waiting for their own home to sell. A home sale contingency also means they can move from one home to the other right away, rather than selling their home and then trying to find a place to live until their new home is ready.

The downside is that buyers will usually have to pay a bit more for the property than if they made an offer without the home sale contingency clause. This is due to the fact that they are asking the seller to take a risk that they might or might not get their money. The sale could fall through, so buyers would pay a bit more to compensate them for basically taking their house off the market.