Q: Our house in Maryland has been for sale for several weeks now, and we are becoming a little disillusioned with the market.
Recently, our real estate agent brought us an offer, but it was contingent on the purchases selling their own house first. What risks are there and what protections should we have? Our broker suggested that we could take back-up contracts, but we don't understand how this works.
A: If you are a purchaser, it certainly makes sense to have the contract completely contingent on your ability to sell your own house first. The purchases would want to have no legal abligation to purchase your house until they have sold -- or even settled -- on their own house. Under most contingencies, if the contingent sale does not occur, the contract is generally voidable at the option of the person for whom the contingency was created.
In other words, if your purchasers do not sell the house, they can decide to cancel the contract. However, they can also take positon that since the contingency is at their option, they can remove the contingency and go forward to purchase your property. The courts are divided on the question whether such a contingency benefits only the purchaser, or can also be used by the seller to declare the contract null and void.
Since you obviously don't want to get into litigation over this matter, I suggest you consider to so-called "kick-out" clause, whereby you, the seller, give purchaser a period of time in which to remove the contingency, thereby going forward with the contract, or canceling the contract in its entirety.
For example, if you find another potential buyer, you can tell your first purchaser to "fish or cut bait." The language you should use reads as follows:
"this contract is contingent on the ability of the purchaser to sell their present house, located at -----. Settlement on this contract will take place on or about the same time that settlement is conducted on the sale of purchaser's house. Purchaser agrees that If the seller obtains a back-up contract, the purchaser will have 72 hours in which to remove this contingency, or this contract shall be null and void and the deposit refunded in full.
This is a fair equitable resolution to your problem. Your purchasers have preserved their desire to sell their own house first, but you are reserving the right to try to find another purchaser during the interim.
Don't be afraid to take up contracts. After you have signed one legally binding contract to sell your house, you may find others that are willing to fall into a secondary position, in the event the primary contract becomes null and void. And there are many reasons for such a contract to fail. For example, the purchaser may be unable to obtain the financing or the purchaser has a structural contingency clause and finds the house unsatisfactory.
Thus, if another purchaser comes your way, you can sign another contract, but make sure to add the following clause:
"This contract will not become binding on the parties until the seller notifies the buyer in writing that the contract has been accepted. It is clearly understood that this a back-up contract, contingent upon the voiding of an earlier contract to purchase."