If you’ve bought or sold a home, or had a close friend or family member do so, then you’re probably familiar with three of the standard contingencies in a real estate purchase.  Unless you’re fortunate enough to have the means to pay cash for a home, then your first contingency is financing.  You have to be able to get a loan in order to buy the house.  Also, if you’re borrowing funds, then the lender of those funds will want the house to be appraised… so there’s your second contingency.  And of course, no matter who you are, you always want to get a home inspection to get a full report on the condition of the property – that’s your third contingency. 

Okay, but what about if you have a home you need to sell in order to be able to buy?  Many buyers find themselves in that scenario, so what do they do?  Well, for many of those buyers the answer is to make an offer with a home to sell contingency.  Essentially, their offer includes all the same provisions, but with one added twist.

The buyer’s offer is subject to them selling their current home first.  If the seller agrees to accept such an offer, typically the timeline for inspections, appraisal and financing are delayed until that first contingency is removed.  And, while the buyer and seller are waiting for the buyer’s home to sell, the seller is usually free to continue to market and show their home to other prospective buyers.

So what happens if the seller of the home receives a second or third offer?  The first buyers – the ones with the home to sell – are given a period of time (called a right of first refusal, or locally many of agents refer to it as a ‘kick-out’ clause) in which to remove the home to sell contingency and provide proof that they can proceed with the purchase, even without having sold their home.  This time frame can be anywhere from 24 to occasionally 72 hours.

If and when the seller receives that second offer, they notify the first buyers and the clock begins to tick.  Those buyers then have time to consider their options.  Option one: remove the contingency, move forward with inspections and financing, and show proof that they can make the purchase without having sold their home.  Option two: tell the sellers that they are unable to proceed, since their home has not sold, in which case the offer is terminated and the parties go their separate ways.

In one sense, for a seller, it may be better to have a buyer ‘on the hook’ as it were, even if they have a home to sell… since the seller can still market the property and work to engage another buyer.  For the buyer, at the very least you have the home you want locked down – at least until another buyer comes along!

This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.