Today, Sam Schneiderman, Broker-owner of Greater Boston Home Team, begins posting on the first Monday of each month. Today, Sam discusses various conditions that buyers and sellers request that can become contingencies in a sale.
There are very few purchases or sales that are not subject to condition(s) that one of the parties requires to make the deal happen.
Most buyers want to inspect the property, secure a mortgage, and review condo docs, if applicable. Those buyers should include carefully worded clauses in their offers that allow them sufficient time to do those things and spell out what happens if they do not turn out satisfactorily for the buyer. In other words, buyers want to make their purchase “contingent upon” or “subject to” a satisfactory outcome of one or more of their requests.
Except for mortgage contingencies, most of the contingencies that buyers request are satisfied in advance of the Purchase and Sale agreement or at a specified time after signing it. The mortgage contingency is typically satisfied about a month from the Purchase and Sale signing. Prudent seller’s agents and sellers understand how to verify a mortgage pre-approval so that the odds are in their favor that the buyer will get the mortgage unless the property does not appraise.
Sellers can also make a sale “contingent upon” or “subject to” something happening, although that is less common. Here are the seller contingencies that I see requested most often. They are sometimes in the MLS listing, but sometimes they are not discussed until the buyer presents an offer:
- Sale is subject to seller finding to suitable housing.
- Sale is contingent upon third party approval. (This typically refers to short sale approval.)
Most seller’s contingencies are set up so that the buyers are bound to the deal and the seller can cancel if needed. If a buyer accepts contingencies without a specified completion date, he could be left waiting for months for one of those events to happen with the possibility that the sale would never close if the seller could not find “suitable housing” or the seller’s lender did not approve a short sale. If that happened, the buyer would get the deposit money back and would most likely be out the cost of the inspection, appraisal and legal fees for the Purchase and Sale agreement, often in the vicinity of $1,000. In addition to the loss of money, buyers lose time out of the market which could cost them the opportunity to find and buy another property from a seller with the ability to close on the buyer’s schedule. In addition, buyers need to deal with expiring leases and mortgage commitments.
When I have a buyer-client that wants to buy a property with either of the seller’s contingencies above, I recommend that they structure their offers so that the home inspection and purchase and sale agreement are done after the seller has found another home or received third party approval. Many sellers won’t accept those terms.
While sellers are reluctant to allow the buyer to walk away, they should understand that buyers are reluctant to get into a deal that requires them to spend time and money without the guarantee of closing.
Would you get into a deal with either of the two seller’s contingencies discussed?
Have you been involved in a transaction with either of these seller contingencies?
If so, how did you resolve them and what was the outcome.
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