Contingent sale offer a real estate gamble

In very hot real estate markets, offers made contingent on the sale of another property usually don’t go very far. When sellers have multiple offers to choose from, they usually go with offers from buyers who don’t have to sell in order to buy.

But, if you do find a seller who’s willing to accept a contingent sale offer, there’s a good chance he’ll want a release clause to be a part of the contract. A release clause gives the seller a way out of the contract if the buyer can’t find a buyer for his/her existing home within a certain time period.

With a contingent sale offer, a release clause might work like this. You make an offer contingent upon the sale of your home. The seller says fine, but he wants a 72-hour release clause to be in effect until you remove the sale contingency. In the mean time, the seller continues to market his home so that he doesn’t lose precious marketing time. You put your home on the market. Now, it’s a race between you and the seller to see who has the more salable property. Hopefully it’s you and your home sells in time to complete the purchase. However, if the seller receives another offer before your home sells, he’s free to accept it in backup position subject to the collapse of your contract with the seller. In this case, the seller would notify you that you have 72 hours to remove your sale contingency. If you are unable to do so, you must withdraw and let the house go to the second buyer.

Depending on how your contract is written, simply removing the contingency may not be good enough. In most cases, you will also need to prove that you can close the deal without having your home sold, if it’s not sold by the time you receive the 72-hour notice.

HOUSE HUNTING TIP: Don’t wait until you receive a 72-hour notice on a home you want to buy to decide if you can and will move forward with the purchase. If there’s no way you’ll proceed unless your home is sold, then so be it. But, if you’re inclined to make the deal work regardless of the sale status of your home, make arrangements for the interim financing you’ll need before you receive a 72-hour notice. If you’re not prepared, you may not be able to pull the financing together in time, particularly if the 72 hours includes a weekend.

One drawback of a contingent sale offer with a release clause is that you could go to a lot of effort–getting into contract, marketing your home, inspecting the new home, procuring financing–only to lose the property to another buyer. An alternative is to try to negotiate a reprieve so that the release clause won’t go into effect for a period of time, say 21 days. If your home is ready to market and the real estate market for your type of property is active, you could sell within 21 days–if you’re priced right.

There’s no rule that dictates that a release clause must be for 72-hours. It can be for any time period the buyer and seller agree to. In exchange for a delay on the activation of the release clause, you might offer the seller a shorter time frame on the release clause when it does go into effect.

THE CLOSING: In some areas the lower-priced housing market is more active than the higher-priced market. If you’re trying to make a trade-up move in such a market, this strategy could work for you.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers,” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.