I had such a great question the other day. “Jaime, I want to purchase another home, but I am not sure how I can, when it is necessary I sell my current home I am residing in”.
That is a great question, especially for home owners who just recently purchased their home for the first time. There are options on how to go about this process. First option is a contingency offer. Property purchases can be contingent for a few reasons, the one I am specifically addressing today is a purchase contract for a new property, contingent upon the buyer selling their current property. There is an addendum your Broker/Realtor will include with the offer notifying the listing agent and sellers of the contingency. Notice, I did not just type home, I made a broad statement with property. The reason being, contingent offers are not just for homes. For example, you may want to purchase an investment property; however, you need the contract contingent upon you selling your other investment property.
When purchasing another property contingent upon the sale of another property a few things come into play in this scenario. Is your current property ready to be on the market in the next day or so? Gasp! That sounds so drastic, Jaime! Yes it does, but most sellers want to ensure the contingent property is already on the market to be sold or they would like to know an exact date that the contingent property is going to be on the market. This is helpful knowledge for the seller to mull over and determine whether or not they will be willing to accept your contingent offer. If your home is already on the market and you, the buyer, has a contract on your current property, this is very promising to the seller. The selling Broker/Realtor can discuss with the listing Broker/Realtor contract dates, the contingent property status and other pertinent details. If your current home is ready to be on the market, your Broker/Realtor will be able to give you an estimate of the approximate days on the market your property will be listed for. This will be helpful information for all parties involved. If the seller agrees to the terms and a contract is in play; more than likely there will be what is called a kick out clause. What is a kick out clause and how does it work? A kick out clause is called that because it allows a seller to continue showing the property for sale and to “kick out” the first buyer if the seller receives an offer from another buyer without a property sale contingency. This is a way to protect the seller, just in case the first buyer cannot sell their property. Depending on market conditions, typically the period of time can range from 30-180 days. If the seller receives an offer from another buyer, the listing Broker/Realtor must then notify the selling Broker/Realtor of the offer by the second buyer. The notice to the first buyer must be in writing and will allow a period of time in which to decide how they’ll proceed. Typically the time allowed to respond is 72 hours. In my experience, this time period is not feasible. Questions that arise for me are what about a long weekend, vacations or even a legal holiday? I personally prefer to give the buyer until 5:00 PM on the third business day after the notice is given. It gives all parties a definite time frame and the buyer knows when they have to make their decision.
So what happens if the first buyer doesn’t have a contract on their home yet and the second buyer has a back up contract? Several things can occur depending how much the first buyer wants the property.
- The first buyer will most likely call their lender and ask if they qualify for two mortgages at the same time.
- The first buyer may have enough equity in their first property and take out a home equity loan to purchase the new property.
- The first buyer may call a family member or friend to help them purchase the new property.
- The first buyer may cancel the contract of the purchase of the new property all together.
If the first buyer decides to continue with the purchase, the closing of title typically occurs within 45 days of the buyer’s decision to proceed.
If during the time of the property sale contingency, the first buyer sells their house, the contract between the seller and buyer becomes firm and typically the seller no longer will continue to market the house or allow showings.
As you can see there are some pros and cons here for both parties. Contingency contracts and kick out clauses can be a useful tool but they are also not everyone’s cup of tea.
If you are in this current situation and you feel like you really do not jive with the contingency offer, you could always sell your property first and rent another home until you find the right property for you. I have known some people to move into another family member’s home in the interim as well. Everyone’s decision is different and based on different events. You always have to do what is best for you and your family. If you are in a contingent contract and the kick out clause occurs and you are unable to purchase the new property before the second buyer, I promise you, there are always going to be other properties for sale. Maybe that property wasn’t meant for you! You never know! Keep your head up buttercup! Get out there and find another property. You may just fall in love with the next property even more. I always say what is meant to be will be, what is not meant to be will not happen. I always pray about my decisions and if God closes a door, I am completely ok with that. My age and experience have taught me not to push doors open. There is always a reason that door was shut, sometimes slammed shut! Happy buying and selling!!