You’ve heard of purchasing a home contingent on selling yours, but did you know that as a seller, you can market your house for sale pending your ability to purchase a suitable replacement home?

Sellers write contingencies into counteroffers more often in seller’s markets than in buyer’s markets. But it’s not uncommon to see a seller ask a buyer for the right to find a replacement property before fully committing to the purchase agreement.

While this is not very common in today’s market, this is an option for sellers to utilize. In this article, we will go over some of the questions and pros/cons of utilizing this little known contingency.

Q: What is a contingency?

A: Simply put, a contingency means there’s something the buyer or seller has to do for the process to go forward, whether that’s getting approved for a loan, selling their property, or performing an inspection.

Q: How can a seller use a contingency?

A: Under this specific topic, this question can be answered in two ways:

1) a seller can list their home for sale with the understanding that the listing is conditional if the buyer can find a replacement property,

2) a seller can ask the buyer for their current property the right to find a replacement home before fully committing to the purchase agreement.

Q: How does this work?

Depending on specific local real estate law and custom, some contracts will contain a single line making the transaction contingent on the seller finding a replacement home.

The clause utilized by the California Association of Realtors is as follows: The [Purchase] Agreement is contingent on Seller entering into a contract to acquire replacement property (“Finding Replacement Property Contingency”). Seller shall, within [specified number of days] after Acceptance, remove the Finding Replacement Property Contingency or cancel the Agreement.

The problem with that, from a buyer’s point of view, is that such a clause could allow the seller to cancel the transaction at any time—even on the day the home is scheduled to close. Few buyers would accept these terms if they knew what the clause meant in advance.

Both buyers and sellers are entitled to protection. Here are terms that protect both parties in the purchase contract.

Make It Clear the Contract Is Contingent

It’s not the case that buyers will always require that their offer on a home come with contingencies, and not all sellers will accept contingencies on offers placed.

If an offer on a home is contingent on the seller signing a purchase agreement to buy a replacement home, this contingency must be made clear. Sellers, for example, should receive a reasonable amount of time, such as one to three weeks, to find a new home.

These time frame contingencies vary by state. But, typically in California, the contingency period will last anywhere between 17 and 30 days, and in some markets, may extend up to 60 days.

By the set time, it is expected that the seller will withdraw the contingency or cancel the contract. If the parties cannot agree on a contingent contract, the seller’s best options are to either reject the offer or ask for a much longer closing period, such as 45 to 60 days.

Specify Time Period for Other Contingencies

While the contract may specify the number of days in which a buyer must conduct their inspections, such as home inspections, lead-based paint inspections, pest inspections, approval of covenants, conditions, and restrictions (CC&Rs) or homeowner association documents (HOA)—in principle, the clock should not start until the seller has removed their contingency to buy another home. Otherwise, the buyer would have spent the costs of performing such inspections without a guarantee that the seller will sell the home. Therefore, the specified day that an inspection period begins can be the day after the seller removes the contingency or any other mutually agreed upon day. Mutual agreement is key and paramount with all contracts.

Extension of Closing Date

Come to an agreement on the right of the seller to extend the closing, if necessary. Both parties might sign a contract with a 30-day close, but if it takes the seller 10 days to find a new home, the seller might want the right to extend the closing date by another two weeks. Primarily, the reason for an extension is because it might take a full 30 days for the seller’s new mortgage to fund.

Discussing these points upfront and reaching a mutual understanding that is expressed by putting all terms in writing will benefit all parties in the long run.