When selling a home, an offer to purchase is certainly welcome news, but it may be wise to hold off on any celebrations — especially if the offer has a contingency clause. What exactly does that mean?
A contingency clause or addendum spells out what conditions must be met for the sales contract to become binding. The sale could be contingent on several points such as financing, inspection, appraisal or the buyers’ need to sell their home first. Unless the buyer is paying cash or the home is being sold “as-is,” the buyer is always going to have an inspection and appraisal done. The contract will offer a due diligence time period, usually 15 to 30 days, for the inspection and appraisal to be done and for the buyer to obtain financing, which typically takes about three weeks. During this time, the buyer can end the transaction for any reason without further legal obligations.
One of the more concerning contingencies is when a buyer needs to sell a current home. If the buyers need to sell their current home before the deal can go through, the seller needs to carefully consider accepting the offer. Among the concerns: Are the buyers aggressively marketing their current home and is it priced to sell? How long has the buyers’ home been on the market and is it in a desirable area? Will the contingent offer deter other potential buyers?
The seller may add a “kick-out clause” to the contingency. If the seller agrees to the contract, a kick-out allows them to continue to market the property to other willing buyers. Should another buyer make an offer, the original buyer would have a certain amount of time, usually 72 hours, to remove the contingency and keep the contract alive. If not, the seller can legally back out of the offer and accept a new one.