Because contingent contracts are most often a good deal for a buyer and a riskier solution for a seller, many state Realtor associations have devised legal documents that sellers and buyers can use to address contingent contract situations and protect the rights of both parties.
The California Association of Realtors created form COP. Many other states utilize similar language. However, bear in mind that your own state requirements might differ from those of California. California procedures are discussed in this article.
Purchase Contingent on Sale of Buyer's Property
Sellers want to know the status of the buyer's sale process. The status might make a difference as to whether your offer is accepted. Obviously, if your home is not yet on the market, the seller might not consider your offer at all because it will give the impression that you are not serious about selling or buying.
One of these situations should apply and be checked:
- The buyer's home is not yet listed for sale. Please, don't ever check this box because it can hurt your acceptance chances. If your home is not yet on the market, you are not a buyer or a seller. You are somebody who is thinking about it.
- The buyer's home is for sale. You will name the brokerage that has listed your home, the name of the multiple listing service in which it is listed and identify the MLS number. If you are planning to sell your home without representation, the listing agent representing the seller will likely advise the seller to reject your offer. This may seem unreasonable and possibly sound unfair, but if you plan to represent yourself on the sale of your home, you may not appear credible to the listing agent nor to the seller.
- This property is in escrow.Good for you. You sold your home before buying. The seller will want to know the name of the escrow company, the escrow file number and when it is scheduled to close escrow.
If Buyer's Property Does Not Sell
The date of closing on your property is vital. If you enter a date because it is in escrow when you write your offer to purchase, the seller will expect you to close by that date. You have the option to specify a date on the contingency agreement that is different than the scheduled date of closing, which is recommended, especially if your property is not yet in escrow.
If your present home does not sell by the date you specify, the seller then has the right to issue a Notice to Buyer to Perform, demanding that you close. If you cannot close, the seller has the right to cancel your agreement to purchase.
First Right of Refusal
Part of the negotiation process for a contingent contract is whether the seller can cancel your purchase agreement if the seller receives another offer. Typically, the seller retains the right to continue marketing the property, regardless of the option agreed upon.
- Removal of sale contingency. This option lets the seller kick you out of the purchase agreement if the seller receives another offer. Should the seller receive another offer, this provision lets the seller give you, by default, 72 hours to remove your contingency. This does not mean you need to sell, but your agreement would no longer be contingent on the sale. Removing your contingency means you would need to find the funds to close elsewhere such as by obtaining a bridge loan or liquidating assets.
- Back-up offers only. This option does not let the seller kick you out of the agreement to purchase. The seller is legally bound to sell to you, providing you eventually sell your home within the time specified, but the seller can accept offers as a back up in case your transaction falls apart. Very few sellers who have hired an astute agent to advise them will accept this option, however.
If you desire legal advice, please contact a real estate lawyer.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.