Dear Heather,

We have been trying to sell our house for several months, and have just received an offer. The price is right, but the buyer wants the contract to be contingent on the sale of her own house.

The real estate agent has indicated it is the type of property that will sell quickly. We don’t know what to do, what do you think of this kind of contingency?

Contingency

Dear Contingency,

Contingencies based on the sale of the purchaser’s current residence can be tricky. However, it is a fact of life which sellers sometimes have to accept if they want to sell their property.

Few purchasers can afford to buy a new house while carrying the financial burden of their existing home at the same time.

A contingency is a legal concept that basically means that if a particular condition is not met, then the real estate contract becomes null and void. In a home sale contingency situation, if the buyer cannot sell his or her house, then the buyer does not have to go forward with the sales contract to buy the new property. Clearly, such a contingency is in the best interest of the buyer, but not the seller. However, there are certain protections that a seller can obtain if they are properly incorporated into the sales contract.

If you, the seller, are prepared to accept a home sale contingency, this means that you will not have any certainty as to whether your buyers will in fact go to closing on your house, until such time as the buyers have contracted or sold their current residence.

Thus, one important provision to add into any such contingency is a time limitation. How long are you as a seller prepared to wait for them to sell their house?

Generally speaking, these contingencies expire between 90 and 120 days from the time the contract is entered into. At the end of this time period, the contract can be declared null and void at the option of the seller.

On the one hand, you have to be realistic; you cannot put a short time restriction on the buyer, because he or she may not be able to sell the home within such a short period of time.

On the other hand, you do not want to have this open-ended, whereby the buyer at any time in the future can suddenly announce their house cannot be sold, and the current contract is null and void. Thus, a range of between 90 and 120 days is a fair compromise between both of these positions.

A seller should also incorporate into the contract what is known as a “kick-out clause”.

This will give the seller the opportunity to continue to market the property, and most real estate agents and brokers will be happy to assist in these efforts. If the seller obtains another satisfactory offer without any contingencies, the existing purchaser will be given a period of time in which to determine whether to cancel the contract or to go forward with the contract. The general rule of thumb is five working days.

It is important to note, however, that even if the existing purchaser decides to remove the contingency and go forward with the purchase, that purchaser must demonstrate satisfactory financial ability to the seller that he will be able to purchase even though the current residence has not yet been sold.

If this language is not included in the sales contract, the purchaser could remove the contingency, but nevertheless still not be able to get financing until the house is sold, and obviously the settlement will not take place.

The sellers should also keep in mind that if an acceptable second offer is received, they cannot accept that offer until they have given the five-day notice to the first purchaser.

By incorporating a kick-out clause, this permits the seller to continue to show and market the property, while at the same time preserving an interested purchaser who presumably will diligently attempt to sell his own house.

Real estate is not always the simple transaction you imagine it to be.

Make sure you hire a reputable agent and conveyancing attorney who can guide you through the process.

• Heather Chilvers is among Coldwell Banker Bermuda Realty’s leading sales representatives. She has been working in real estate for 25 years. If you have a question for Heather, please contact her at hchilvers@brcl.bm or 332-1793. All questions will be treated in confidence.