If you are currently looking to buy or sell a home, you may have already come across the use of real estate contingencies such as the home sale contingency or the home close contingency. Although they sound similar, there is a slight difference between the two. It can be helpful to understand this difference to ensure you are properly prepared before entering into a real estate contract.
A contingency is a provision included in a real estate contract. When a potential buyer makes an offer to purchase a home, the buyer and seller enter into a contract known as a purchase and sales agreement, or P&S. This agreement spells out the details of the transaction including the purchase price, when the parties would like to finalize the deal and complete closing as well as any special conditions required by either the buyer or the seller. These special conditions are known as contingencies, and failure to meet requested contingencies can nullify the purchase and sales agreement.
Home Sale Contingency
A home sale contingency occurs when a potential buyer writes an offer to purchase a home, but the buyer already owns property that he must sell before closing on a new home. Timing in real estate transactions is often imperfect, and a buyer may have his current home up for sale while searching for a new home. If he finds the right new home, he may not want to risk losing it by withholding a purchase offer until after his own home has been sold. To eliminate the risk of owning two properties and carrying two mortgages, the buyer makes a purchase offer contingent on the sale of his own home.
Home Close Contingency
The home close contingency is almost the same as a home sale contingency and may even be used interchangeably. The one notable difference, according to real estate information website Illinois Real Estate, is that the home close contingency is indicative of the fact that the potential buyer already has a purchase contract on his current home and is simply waiting for the closing date. In many cases, the closing date could only be a matter of a few days or weeks, which would leave the buyer free to close on the new property immediately thereafter.
Most contingency clauses are designed to protect the party requesting it, but there is often a safety net feature to protect the other party as well. Home sale and home close contingencies generally have a limited window between 30 and 90 days, after which they expire. Additionally, the seller who accepts a purchase offer with a contingency has the right to continue showing the property and may accept backup offers in case the original offer falls through.