Most purchase agreements for single family homes contain one or more contingencies, i.e. inspections, financing, association document, septic, water test, etc. Most contingencies put the buyers in control of the purchase agreement, as they have the right to cancel or renegotiate if they aren’t satisfied with the outcome of their due diligence. In a seller’s market like this one, it is not uncommon to see back-up offers.
Back-up buyers know the property is sold, but want to be the next buyer in line, if the first purchase agreement is cancelled. The second buyers and the sellers sign a new purchase agreement marked, “subject to the cancellation of a previously written purchase agreement” by a certain date (typically the expiration of the first buyer’s contingency). If the first purchase agreement is not cancelled by the expiration date, the second offer is cancelled.
Having a back-up offer is reassuring for the sellers, as they don’t feel as pressured to renegotiate an inspection item, and if the first buyer cancels, they don’t have to put their home back on the market.
If a home is sold contingent on the sale of the buyer’s home, the sellers are in control of the purchase agreement, as they have the right to demand removal of the contingency anytime. There is a predetermined amount of time entered on the purchase agreement, whereby, upon written request from the sellers; the buyers must present the sellers a valid purchase agreement for the sale of their home. It can’t be contingent on anything other than financing, and the closing date must not be later than the closing date for the seller’s home, otherwise the purchase agreement can be cancelled.
While the buyers are trying to sell their home, the seller’s home stays on the MLS (Multiple Listing Service) as Active with a notation regarding the contingency for sale of the buyer’s home. Agents and savvy buyers know when they see this contingency on the MLS, the first buyers are at risk of being bumped. Other buyers see it as any other contingency; comparable to an inspection, so showings can decline.
It is rare for buyers to be able to present an acceptable offer on their home to the seller within the allotted time frame; typically, 2 or 3 business days, so back up buyers feel confident that they can bump the first buyer and move into first position.
I recently had a listing sold; subject to the sale of the buyer’s home, received a back-up offer, but the first buyers did sell their home within the allotted time frame. Even though the offer wasn’t perfect, the sellers decided to stick with the first buyers and extend their closing date, rather than cancel and start over with a new buyer.
Dealing with contingent offers can be confusing as the outcome is determined by the negotiations of the buyers and sellers. An experienced agent can guide you through the many contingencies in your purchase agreement.
Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to firstname.lastname@example.org. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.