Contingent Offers Create Complexity

Most Orange County residential sale and purchase transactions include contingencies that remain intact until they Blog Imagehave been removed in writing within a specified time frame.  The inspection contingency allows for the option to cancel should material facts be found that impact the desirability of the property.  This means if the air conditioner doesn’t work and the seller declines to repair or replace it, the buyer can bow out without and recrimination or financial punishment.  The appraisal contingency gives the buyers the choice to cancel the contract if the home doesn’t appraise for the agreed-upon price. Where contingencies get more complicated is when the purchase is contingent on the sale of the buyers’ house.  Take this situation for example.

The sellers are thrilled to receive an offer just under the list price 17 days after the house hits the market.  However, the offer is contingent on the sale of the buyer’s house, which is currently listed for sale but not in escrow.  The sellers say “OK – we’ve got a deal – IF you give us the full list price AND you get your house in escrow within a week.”  The buyer, who really loves the sellers’ house, says “You got it!”  Yippee!  Let’s call these people Seller 1 and Buyer 1 Seller 2 – just to make things as clear as possible.

Then, five days later, the Buyer 1 Seller 2 gets an offer on her house, contingent on the sale of Buyer 2 Seller 3’s house, which is listed for sale but not currently in escrow.  Buyer 1 Seller 2 gives Buyer 2 Seller 3 seventeen days to get his house in escrow.   And the time frame for removing all of the other buyer contingencies mentioned above doesn’t start until Buyer 2 Seller 3 has a signed contract for the sale of their home.  Hopefully Buyer 3 doesn’t have a house to sell.

Blog ImageTo figure out when each transaction is likely to close escrow, we have to add the longest possible time for each of the previous transactions to remove all of their contingencies and close escrow.  And each of the buyers will usually not perform their home inspection or appraisal until those contingencies have been removed by their buyer.  It becomes something like a relay race, with each party watching what’s happening behind them and communicating ahead of them with the next person in line.  In addition to multiple buyers and sellers, there are the multiple escrow officers, title reps, lenders, and of course agents who have their own roles to play as the real estate relay race is in progress.  As long as the details of each contract are clear to the player on either end, and the buyers do their part to keep things on track, it can all work out.  Transactions like this, where there are multiple buyers who are contingent upon the sale of their homes, happen less frequently than transactions where you’ve only got the buyers’ contingencies for the purchase to map out and manage.  Thank goodness.


I'm Leslie Eskildsen, Realtor.

Call me. Text me.  949-678-3373

Email me. Leslie@LeslieEskildsen.com

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