Contingent Offers

Most offers to purchase a property include some contingencies...conditions which must be met before the purchase agreement becomes totally binding or the agreement is cancelled and the earnest money is returned to the buyer. Common contingencies include a private home inspection, financing, review of condo or townhouse association documents, well or septic inspections.

When someone talks about making a contingent offer, however, they are usually talking about making an offer contingent upon the sale of their current home. This kind of contingency can prevent you as a buyer from ending up with two mortgages, but you are more likely to pay a higher price to offset the negative aspects of a contingency...and you could also lose the property to another buyer.

Details of a contingent offer in Minnesota

1. The contingency addendum gives the address of the contingent property, states that it is currently or will immediately be listed for sale and includes the name of the listing broker
2. The addendum includes the date by which the contingent property must be sold or the purchase agreement will be cancelled and the earnest money returned to the buyer
3. The seller can continue to offer the property for sale and negotiate with other buyers
4. If the seller comes to an agreement on an offer from another buyer, the seller submits a 'Request for Removal of Contingency' to the contingent buyer
5. The contingent buyer then has the amount of time specified in the addendum (usually 48-72 hours) to remove the contingency

Removing the contingency

1. The contingency is automatically removed by delivering a copy of a valid, fully signed purchase agreement for the sale of the buyer's property that is not contingent upon anything other than financing and has a closing date not later than the closing date in the contingent purchase agreement; this means that contingencies for inspection and review of condo association documents must have already been satisfied
2. It used to be that the buyer could also automatically remove the contingency by providing 'written proof' that the buyer can purchase without the sale of the property; this provision was removed from the contingency addendum in 2007
3. Buyer & seller can agree to amend the purchase agreement to remove the contingency with different terms than specified in #1 above; it could also involve re-negotiating other terms of the agreement

Both buyers and sellers should be thoughtful and cautious about contingent offers. During the strong sellers' market a few years ago they were rare because properties were selling so quickly that buyers were confident they could sell before closing on their next home. In our current buyers' market sellers are concerned about whether contingent buyers will be able to make a timely sale of their contingent property and negotiation may even include pricing of the contingent property.

I find that most repeat buyers sell first. It puts them in a better negotiating position for their purchase and they know how much they will be netting on the sale of their current home before making a decision on their next one.

Sharlene Hensrud, RE/MAX Results - Email - Website

Comments

[Frank Schulte-Ladbeck]

Very informative post. I am always trying to learn about real estate transactions in any state. Why was the provision for the buyers taking the contingent option removed? It seems like they should have some options.

[Sharlene Hensrud]

Thank you for your comments, Frank. I'm glad you found it informative. My understanding is the automatic removal of the contingency through 'written verification' of ability to buy without the sale of the contingent property was removed because it was too vague. It can still happen, but not automatically. It now has to be through written agreement by both buyer and seller.