About 30 days ago we signed a contract to sell our house. The contract gives the potential buyers 60 days to get financing or they can withdraw from the deal and get their deposit money back.
We are extremely nervous that the buyers will not be able to qualify for the loan, despite the assurances of our real estate agent.
We have heard that sellers can take additional contracts in case the original contract goes bad.
Can you explain how this works? You are referring to a back-up contract, which has become very common in the buying and selling of real estate.
To have a binding contract for the sale of a house, the law requires a written document that lists all 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, including real estate sales agreement and purchase contract.
The legal requirement to have a binding contract requires that there be an offer, an acceptance and "valuable consideration." These are the principal elements required for any contract.
In general, a buyer who likes a house presents a written offer to the seller. The seller has three options: accept the offer, reject the offer, or make a counteroffer. If the offer is accepted, and there is consideration for the transaction, a valid binding contract exists.
Consideration, however, does not have to be money.
Although the deposit that the buyer puts down with the contract is sufficient consideration, the courts have held that when a seller takes the house off the market for a period of time in reliance on the contract, this also is considered "valuable consideration."
Once a contract has been signed, the seller must adhere to its terms. Unfortunately, most buyers are unable to come up with all cash to buy a home.
They must seek financing, and have a financing contingency giving them at least 45 to 60 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 this does not help the seller. As you have indicated, you are getting nervous as the end of the 60 days draws near. If the buyer 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 strongly 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 a 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." Benny L. Kass is a Washington attorney. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.