How to Use First Right of Refusal on Contingent Offers on Plano Real Estate

 

If you are going to make an offer to buy when your current home is not yet sold is a challenge for many of today’s home buyers. Regardless of whether it's a seller’s market or a buyer’s market most sellers aren't eager to accept an offer that has a home sale contingency of the buyer's current home, either.

Types of Home Sale Contingent Offers

Although there are many types of a contingent offers, most adhere to one of two types of formats:

1.    Seller take take their property off the market and wait for the buyer to sell their existing property.

2.    Seller to keep the property on the market but can accept a non-contingent offer, providing the first buyers with a 72 hour kick out clause to perform in the event seller receives a better non-contingent offer.

Most sellers of and will choose option one. The reason a seller may accept option two is if there are not likely to be any other buyers making an offer on the property.  Many sellers will not wait very long and will stipulate a date for the transaction to close.  If the buyer's property has not sold by this date, the transaction can be canceled.

What is a 72 Hour Kick Out Clause?

A 72 hour kick out clause will state that if another non-contingent offer comes in the first buyer will be notified of such and they will have 72 hours to make their offer non-contingent or the second non-contingent will move into first place and the first buyer will be “kicked out”. If the buyer does not remove the home sale contingency, the seller has the right to cancel the contract and refund the earnest money to the buyer.

Removing Sale Contingency Under First Right of Refusal Options

·         Take a home equity loan. Most lenders will not approve a home equity loan once your home is on the market, and a seller is not likely to accept a contingent offer unless your home is on the market and at a salable price.

·         Get a bridge loan. It is best to get approved for a bridge loan before receiving a 72 hour notice to perform. This way you won't have to scramble trying to line up financing over an impossible 72 hour period. Bridge loans are an expensive option because you may pay high loan fees.

·         Get a higher loan-to-value loan. If you were planning on putting down 20% to buy your new home, put down less, maybe 10% and get a higher loan amount. Then, when your home does sell you can use the proceeds to pay down the mortgage.  Note that many higher loan-to-value ratios carry higher interest rates and fees.

·         Borrow the down payment from a friend or relative. Some home buyers can access the bank of Mom and Pop.  Keep in mind it is not generally wise to do business with family and friends.

·         Remove your sale contingency.  Really?  If you are confident your home will eventually sell, and you can stand the pressure and stress some buyers choose this option.

Risk for Removing Sale Contingency                         

While considering removing your home sale contingency, review your sales contract with a lawyer and obtain legal advice to determine your rights under the contract.  In some States a sales contract, for example, clearly state your earnest money at risk if you default on the contract.  If you can live with losing the amount your earnest money by taking a gamble that your property will sell, it may be worth it to you.

Proof of Funds to Close               

When a home sale contingency is removed the astute seller will ask for evidence of funds to close. This helps prevent some buyers from arbitrarily removing their contingency without the ability to close.