Q. Our house in Virginia has been for sale for several months 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 purchasers 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. Purchasers would want tohave no legal obligatin to purchase you house until they have sold -- or even settled -- on their own house. Under most contingencies, if the contingent sale does not occur, the contract 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 their house, they can decide to cancel the contract. However, they can also take the position that since the contingency is at their option, they can remove it and go forward to purchase your property. The courts are divided on the question of 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 that you consider a so-called "kick-out" clause, whereby you, the seller, give the purchaser a period of time in which to remove the contingency, thereby going forward with the contract, or cancelling it.
For example, if you find another potential buyer, you can tell your first purchaser to "fis or cut bait." The language you should use reads as follows:
"This contract is contingent on the ability of the purchaser to enter into a binding contract 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 the purchaser's house. The 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 and 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 back-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 that the primary contract falls through. There are many reasons for such a contract to fail.
For example, the purchaser may be unable to obtain the financing or, citing a structural contingency clause, may find the house unsatisfactory.
Thus, if another purchaser comes your way, in today's market you certainly should sign another contract, but make sure to ad 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 is a back-up contract, contingent upon the voiding of an earlier contract to purchase."