June 2025
Purchasing a new home but still owning your current home that you plan to sell can be challenging to navigate. This is when a sale of home contingency becomes useful. A sale of home contingency is commonly exercised by buyers in a sales contract to protect the buyer from being on the hook for two houses. This contingency allows the buyer to submit an offer to purchase a home contingent upon the sale of their current residence.
The way it works:
- As part of the sales contract, the buyer agrees to purchase a home only if their current residence is successfully sold within a specific timeframe.
- If the buyer’s current residence does not sell by the deadline in the sales contract, the buyer may get out of the contract without penalty.
- The seller may elect to include a kick-out clause in the sales contract. This clause allows for acceptance of another (non-contingent) offer but with prior notification to the original buyer.
Advantages for the Buyer:
- Decreased probability of being on the hook for two homes
- Ability to use funds from the home sale towards the home purchase
Disadvantages for the Buyer:
- The sale of home contingency may weaken the buyer’s offer to purchase
- In a multiple-offer situation, the seller may select another non-contingent offer
Advantages for the Seller:
- The seller has a ratified contract!
- If the kick-out clause is enforced, the seller can accept an offer free of contingencies with prior notification to the initial buyer
Disadvantages for the Seller:
- Potential for delays
- Potential for going back on the market
In summary, a sale of home contingency protects buyers who need to sell their current home before purchasing a new home. Understanding this contingency is critical for a smooth transaction with reduced risks.
