Q: We signed a contract to sell our house about 30 days ago. The contract gives the purchasers 45 days in which to get financing, or they can withdraw from the deal and get their deposit money back. We are extremely nervous that the purchasers will not be able to qualify for a loan, despite the assurances of our real estate agent.
We have heard that sellers can take additional contracts, just in case the original contract goes bad.
Can you explain how this works?
A: You are referring to a "back-up contract," which has become very common in the buying and selling of real estate.
In order to have a binding contract for the sale of a house, the law requires a written document that spells out all of the terms of the sale.
Included are the sales price, the date of settlement and any contingencies that may defeat the validity of the contract.
This written document has many names, ranging from "real estate sales agreement" to "purchase contract."
The legal requirements to have a binding contract require that there be an offer, an acceptance and "valuable consideration." These are the principal elements required for any contract.
Generally speaking, a buyer who likes a house presents a written offer to the seller. The seller has three options. The offer can be accepted, rejected, or counter-offered. When the offer is finally accepted, and there is consideration for the transaction, a valid binding contract exists.
"Consideration" need not be money. Although the deposit that the purchaser puts down with the contract is sufficient consideration, the courts have also held that when the seller takes the house off the market for a period of time in reliance on the contract, this too is "valuable consideration."
Once a contract has been signed, the seller must adhere to its terms. Unfortunately, not all buyers are able to come up with all cash to purchase their house. They must seek financing, and have a financing contingency giving them at least 30 to 45 days to find the money. If the buyer cannot get financing, the transaction is null and void, and the deposit should be returned to the buyer.
But, of course, this does not help the seller. As you have indicated, you are getting nervous as the end of the 45 days draws near. If the purchaser is unable to get financing, the deal is off, and you are still without a buyer.
You have the right to take back-up contracts. I strong recommend that sellers continue to try to market their house (with or without a real estate broker) even after they have found a buyer who has signed a contract, until all financing and other contingencies are removed. There always remains the possibility that the buyer can legally back away from the deal.
However, if you find a second purchaser who is prepared to sign a contract, you must qualify that written document to reflect the back-up status.
It is recommended that you place the following language in any back-up contract:
"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 is a back-up contract, contingent on the voiding of an earlier contract to purchase."