Navigating Home Sale Contingencies

You found your perfect home.

The kitchen is immaculate. No more bunk beds. The backyard has a pristine pitch awaiting future knee slides. There’s enough space for everyone to retreat into other rooms while you finish your book in silence. You can’t wait to put in the offer and enjoy your new oasis.

You remember you also have to sell your home. The stress returns. The panic elevates. You’re not sure how much longer you can share one sink. Every room looks like the kids’ play room. The workshop has taken over the backyard.

Unless you’re a cash buyer and gassing up the Porsche for a weekend in Avalon, you may need to sell your own home in order to take that next step. This may require a home sale contingency. Although removing all contingencies would be the best way to present the strongest offer to a seller, a buyer’s home sale contingency is not a deal breaker. Yet knowing the options and the process can help any buyer get through a double move with more ease.

A Home Sale Contingency is a stipulation in an Agreement of Sale, via an addendum, that describes how a buyer’s ability to execute a transaction is affected by the sale of their own home. The most likely scenario for a home sale contingency is that the buyer will be using proceeds from the sale of their home to purchase the new home, but the buyer may also be avoiding the possession of two mortgages or a homeless transitional period.

Pennsylvania has clear options for how a buyer can present this contingency to a seller, and each one is meant to lessen the contingency, influencing the execution of the agreement by providing more control to the seller. Let’s walk through the different scenarios:

Option 1: Settlement of Other Property Contingency

This contingency is the least restrictive for the buyer and is used when the buyer already has an agreement in place for the sale of their home. The buyer will provide a copy of the agreement to the seller. If prior to settlement, the buyer’s settlement date is changed or the agreement is terminated, the seller has the option of terminating the agreement or extending the settlement date to allow the buyer more time to secure a new agreement. The seller must also adhere to the language in this contingency for termination as opposed to the Mortgage Contingency, which was featured in another post, because the buyer has already expressed the purchase is contingent on the sale of their home to acquire a mortgage. If a deal is terminated, the buyer is entitled to the return of all deposit money

Option 2: Sale and Settlement of Other Property Contingency

The Sale and Settlement of Other Property Contingency represents the second least restrictive home sale contingency for a buyer putting an offer on a new home. This contingency is used when the buyer’s property is ready to sell but not currently on the market. As per this agreement, the buyer will put their home on the market within a specified number of days, usually 2, and notify the seller when an agreement has been reached.

What happens next depends on the seller’s confidence in the sale of the buyer’s home as it affects the buyer’s ability to make good on their agreement as well. The seller can accept or reject the agreement of sale on the buyer’s property, during which the buyer then has 24-hours or more, depending on the agreement, to either remove the contingency and prove the sale can continue without it or present a renegotiated agreement of sale to which the seller can agree or reject. The seller has control over whether they’d like to continue with the deal or terminate.

The seller may terminate the agreement if the buyer does not have an agreement on their home in place by a specified date. Throughout these negotiation periods, if a seller fails to respond during a set time period, they accept the agreement as is and the transaction resumes. The language for termination supersedes the mortgage contingency, and the buyer is entitled to the return of deposit money.

Option 3: Sale and Settlement of Other Property Contingency With Right to Market and Timed Kickout Clause

Much like the prior contingency, the buyer must list and have an agreement in place on their property, by a specified time, and have the agreement approved by the seller in order to proceed. However, in this contingency, the seller may continue to market their property. If a buyer receives an agreement, they will notify the seller, who can accept or reject the agreement. If rejected, the buyer can remove the contingency with proof or provide the buyer with their renegotiated agreement. The agreement can be terminated if either party fails to respond during the specified time.

What differs between this contingency and the others is that ff the seller receives a bona fide offer from another buyer, they must notify the buyer of their intent to terminate. The buyer then has a specified period, usually 24 hours or more, to remove the contingency with proof or provide a renegotiated agreement. The seller then has 2 days to accept the buyer’s proof to proceed without the contingency, accept the buyer’s new agreement, or terminate the agreement. With the timed kickout, the buyer has the opportunity to prove they can still make the deal whereas without the timed kickout, the seller can move on with the other offers and terminate.

Option 4: Sale and Settlement of Other Property Contingency With Right to Market

Without the kickout, the sale and settlement contingency favors the seller even more, providing the most options to terminate a contract. Like the previous examples, this contingency requires a buyer to list and accept an agreement on their property within a specified time period. The buyer acknowledges that the seller has a right to continue to market their property; however, if the seller accepts an offer from a new buyer, the current buyer’s agreement is terminated. The seller does not need to provide prior notice, and the buyer doesn’t have the opportunity to respond. This presents the greatest risk for the buyer and the strongest competitive advantage for the seller.

If a buyer locks into an agreement for their own property and the seller approves, the seller’s right to market their property ceases and the transaction continues as agreed. Like the above examples, the seller has a way out if the buyer’s commitment date passes, and since the buyer needs to sell their home in order to obtain a mortgage, the language in this contingency for termination supersedes the mortgage contingency.

Though the language may appear redundant, each contingency has minor nuances that gradually shift the control from the buyer to seller. If you require a home settlement or sale contingency, your real estate team can offer the best option as it relates to your situation and the current market conditions. With the right communication and strategy, the burden of a contingency can be alleviated and the transaction’s potential to continue improved. Outside factors certainly influence decisions and challenge emotions, but if a buyer presents a strong offer with a high likelihood of selling their property and accepting an equally strong offer, the sale can continue as planned. Visions of gourmet meals return. Peace resumes when everyone has their own room. The lawn can be the Maracana. That oasis doesn’t need to disappear.