All agreements to purchase and sell real estate contain contingencies about financing, inspections, appraisal and title, among others. Sometimes, there is also a contingency because the buyer has a home that they need to sell in order to buy another. This is the one I wish to talk about here.
In our market (Lafayette, LA), there is a form/addendum Realtors use to outline the conditions of such contingency. The buyer’s current property address is listed as well as a date by which the contingency needs to be removed. There is also a clause in the addendum which states that if the seller receives another offer he wishes to accept, the buyer will have __“X”__ hours to remove the contingency (usually 48 to 72 hours). Failure to do so means that the buyer has to let go of the home (and gets his deposit back).
As a Realtor when I represent a seller, I recommend that they do not agree to a contingency on the sale of another home unless the buyer already has a contract on their home. The reason is simple. Changing the status of a listing from Active to Contingent essentially takes it off the market until the contingency is removed or the home gets back on the market. Most agents do not show Contingent properties to their buyers and days, even weeks, can be waisted in marketing time waiting for the buyer to sell his home. If the buyer has a contract on his home, including a closing date, the transaction has a much better chance of going through and the seller takes less of a risk.
These past few days, I’ve been talking with a For Sale By Owner who has a contract on his home and his buyer needs to sell his current home before he can buy his. They did not use a contingency form so there are no deadline involved except for a closing date three months down the road. Furthermore, the buyer does not have a contract on his home and he is currently trying to sell his property by owner.
A few days after he signed this first contract, the seller received another offer on his house that does not include a contingency on the sale of another home. He is now wondering if he can get out of the first contract and accept this second offer.
The simple answer is no. A contract is a contract and it is legally binding when signed by both parties.
If the contract does not include anything about a contingency, the seller cannot cancel the contract because he has another offer he wants to accept (well he can but could be sued). Unless the buyer kindly lets him out of the contract, or they can negotiate terms acceptable to both, Mr. Seller might have to wait three months before he can accept another offer on his home. Such is life. Real estate transactions are not hand-shake kind of deals.
In fact, in the purchase agreement that we use as Realtors in Louisiana, it states that both buyer and seller can be sued for up to 10% of the purchase price if the contract is canceled for a reason other than those written in the agreement. This is serious stuff and it is why all contingencies must be spelled out and in writing. If we are talking about a 300K home, it means that getting out of the contract for no good reason could cost someone 30K. It is worth the risk?