Challenges Surrounding Contingency Contracts

I was watching one of the Winter Olympics speed skating relay races on TV last month. I was quite impressed by the level of teamwork and coordination as the athletes passed the baton from one skater to the next. Earlier this year, I was involved in the real estate equivalent of a relay race, i.e. a home sale contingent on another sale that was contingent on still another sale.

One of the most common elements found in real estate sales contracts is the “Addendum for Sale of Other Property by Buyer”. Essentially, this makes a buyer’s purchase of a home contingent on the sale of their existing home. So, if the buyer’s home doesn’t close, he/she is not obligated to go forward on the purchase of the new home. For most buyers other than first-time home buyers, this provision is needed since they either don’t financially qualify to own two homes at the same time, or just don’t want the financial burden of owning two homes at the same time.

In my recent experience, my client had a sales contract with a buyer in place on their existing home and a contingent contract in place on a home they wished to purchase. The seller of that home had a contingent contract in place on another home owned by someone that was moving out of the country. Through much effort by three separate Realtors, all three homes were scheduled to close on the same day in a domino fashion. Moving vans were scheduled at each of the homes and everyone was excited about moving. Unfortunately, there was a last minute, unexpected glitch in the first one of these transactions, and four families, three Realtors, three title company closers and three loan officers were on pins and needles until late in the day when the glitch was finally resolved.

Because of the increased uncertainty involved in contracts contingent upon the sale of another home, they are not the most favored among home sellers. But sometimes, they are the best alternative available. When a seller is considering the acceptance of a contingent contract, it is important to ask the buyer’s agent about the likelihood of the buyer realizing a timely sale of their home. The best evidence of that would be if the buyer already had a contract in place on their existing home, but at a minimum, their home should be listed, actively marketed and appropriately priced.

After a contingent contract is executed, there are a few additional things that a home seller should do. First, the “Addendum for Sale of Other Property by Buyer” should be written in a manner that requires the buyer to remove their contingency within a few days if the seller wishes to accept another offer. So if a stronger offer comes in, the buyer has to remove their contingency or opt out of the contract. And to facilitate the receipt of a stronger offer, the status of the listing in MLS should indicate that the home can continue to be shown to other prospective buyers.

For homeowners facing a job transfer or wishing to trade up or down to a different home, a contingent offer is usually a necessity. Just be careful that you don’t skate in this relay race on thin ice. Count on the help of a seasoned real estate professional who can ease the stress and increase the odds of success.

If you are in need of a Realtor, please give me a call. I have been a Realtor in Montgomery County since 2000. I've earned a GRI designation, and have been certified by HAR as a Top Production Realtor® in 2007, 2008 and 2009. My office is located between Conroe and Montgomery at 19755 Hwy 105W. I can be reached at 936-537-1656 or emailed at Claudia@ClaudiaHohlt.com.