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00:29: Theodora: Hello, and welcome to 680 Home Video Channel, a web series where we answer all of your real estate questions. I’m your host Theodora and I’m talking to local East Bay real estate broker Doug Buenz.
00:41: Hi Doug, how are you? It’s great to see you again!
00:44: Doug: Nice to see you, Theodora.
00:46: Theodora: Today we’re gonna continue our discussion on contingencies. Doug, what is a contingent sale?
00:52: Doug: That’s the mothership of all contingencies. That in fact when buyers talk about contingencies, they’re typically talking about sale contingencies. Basically what it means is it’s the contract is subject to the buyer successfully selling and closing escrow on their house. So if someone says a contingent sale, that’s usually what they mean.
01:16: Now, what’s involved contractually in a contingent sale or contingent offer? Usually, there are several facets to it. In the contingency period, the buyer will stipulate a contingency period. So they have a fixed period of time in which to get and accept an offer on their house. That’s negotiated, there’s no standard for that. It can be anywhere from 10 days to 60 days depending on the situation. But the contract clearly has an endpoint where if the buyer has not sold their property by that date, the seller can elect can’t to the agreement.
01:54: The other main part of a contingent sale is typically what is called a release clause. So, the seller by agreeing to a contingent sale generally has some protection in there that should a non-contingent buyer make an offer on the property, the seller can accept the non-contingent offer and bump or eliminate the contract for the contingent buyer. There’s a period of time associated with that usually. The default period of time in the California contract is 72 hours. So, the scenario says if you have a contingent offer on my property, and a non-contingent buyer comes and I accept that offer, I give you notification that I’ve accepted another offer and you have 72 hours to remove your sale contingency for my property.
02:46: Now you can’t just sign a paper that says we remove the contingency. You have to provide evidence that you have the financial ability to close escrow on my house without selling your property or you have to produce a ratified purchase contract on your property within that timeframe. If you fail to do so by the time the 72 hours is up then your contract is null and void.
03:07: Occasionally you’ll see a buyer request what’s called the lockout clause. They’ll say how about you give me 60 days to sell my house and I’ll buy your house subject to me selling my house. But, I want 30 days with no release clause. So, you have to give me 30 days for I know if I sell my house in that 30 days we have a deal. So that is also a negotiated time period, there’s no standard for that.
03:33: What are the important factors for a contingent sale if you’re a seller is what is this contingent on? Is it contingent on a 27-acre parcel in Colusa that has a duck club on it or is it contingent upon a property on Nob Hill? Obviously, that’s an important factor and you have to gauge the probability that the buyers can be able to sell their house. So, as a listing agent for example in this situation, I’ll often go out and try to visit the property and ascertain what’s the probability of this house selling and the buyer being able to perform on a contract. So that’s another very important factor.
04:10: You also see contingent on the close of escrows. So it’s very common a buyer may put an offer to purchase your property but they need to close escrow on their property to finish the transaction. In that situation, you need to again ascertain the probability of that transaction closing. So it would be prudent for the agent to inquire how long has the property been in escrow? How is the buyer on that property removed all the contingencies? I mean if they have, pretty good bet. If it’s only been in contract for 1 day and it’s a 72-year-old house, there is a lower probability that that sale is going to close. So it’s important to really understand who you are entering into a contract within that situation.
04:59: Are contingencies important? Are contingencies successful in the market? It really depends on market conditions. A contingent buyer is a weak buyer. There’s no question about that. So if a seller is very motivated and they’re facing foreclosure or they’re transferring across the country, their typically not going to entertain a contingent offer. If it’s a bank foreclosure, they definitely will not entertain a contingent offer. So it really depends on the seller situation.
05:27: One of the unfortunate things about a contingent offer is that the sellers who are most likely to accept contingent offers are the sellers who are having a hard time selling their property. So as a contingent buyer, you’re in essence limiting your available homes to those that the seller is not very motivated on or the seller is having a hard time selling. So that’s another downside. You really can’t compete for the prime properties typically as a contingent buyer.
05:57: The other thing is there is an emotional toll if you’re a contingent buyer. There’s a lot of potential for disappointment and lost time. You might find a perfect house, write a contingent offer, get all excited, get your house on the market, and then get bumped by a non-contingent buyer. And if you go through that a couple of times, it quickly becomes a very unpleasant process. So that’s the long and short of a contingent sale in the market today.
06:31: If you have real estate questions or need assistance I do hope you’ll give me a call. I’m worthy of your trust.