What happens when a buyer finds the perfect home but needs or prefers to sell their own home first? Of course, it’s ideal to have your home under contract before signing a new contract to purchase. But life isn’t always ideal, particularly in real estate. Realtors® may use a contingency for their clients called “first right of refusal” in such situations. In the Cincinnati area, agents typically use a “Contingent Sales Addendum With Prior Notice” or a “Contingent Sales Addendum Without Notice.” Your Realtor® should explain the difference between the two and help you determine which one is right to use.
The first right of refusal contingency allows the seller to continue to market the property and seek other offers while the buyer tries to satisfy the contingency to sell their own home. In the event of a new offer, the first buyers have a specified period of time to remove the contingency or show that it’s been satisfied. Or the addendum can be written so that the first buyer’s contract is automatically terminated. Obviously disputes can arise in such situations, so it’s critical you understand the language of whichever form you sign as part of the contract. Before you sign a contingent sales addendum, here are the critical areas you need to understand.
Contingent Sales Addendum With Prior Notice
∙ Pay attention to the number of days you have to list your house, if it isn’t listed already.
∙ Keep track of the contingency period dates in which you must close on your current home as well as the date you must give written notice that you’ve satisfied the contingency.
∙ If the seller receives another offer, he must give you first right of refusal (as the first buyer) prior to the end of the contingency period. This means that you can still get the house if you’re able to waive the contingency. The addendum spells out a specified number of hours to waive the contingency and you must respond in writing in that timeframe. If the you’re unable to waive the contingency (perhaps financing is not possible without selling your current home), the contract is considered null and void. You’ll be released from all obligations and get back all earnest money.
∙ This type of addendum works best if a buyer is able to afford a home without selling his current home.
∙ With this agreement, the property status is changed to “pending” in MLS so that other buyers know a contract is in progress.
Contingent Sales Addendum Without Notice
∙ The seller may terminate the contract with you unilaterally and accept another offer prior to the end of the contingency period. In this case, you do not have first right of refusal.
∙ Termination without notice is sometimes referred to as “sudden death.”
∙ Pay attention to the number of days you have to list your house, if not listed already.
∙ Keep track of the contingency period dates and when you must give notice that you’ve satisfied the contingency.
∙ This type of addendum works best if a buyer is unable to afford a home without selling his current home.
∙ With this agreement, the property status may remain as “active” in MLS, meaning other buyers will not necessarily know that the property is under a contingent sales contract.
Sellers will often want to know whether a buyer needs or simply prefers to sell his current home first. Needing to sell likely means that financing is difficult or not possible without the contingency. This could be a critical negotiating point for the seller who may want to keep the opportunity open to find another buyer. If neither contingent sales forms suit your needs, you may need to consult a real estate attorney to draft more specific language.