If you are in the process of looking for a new home and moving out of your current house it is likely that you have heard the term Home Sale Contingency. This is a pretty important clause in a real estate contract that is important to understand, but what exactly is it. We will explain what a home sale contingency clause is, the types of clauses that exists, and what you should know about them as a home buyer.
What is a Home Sale Contingency Clause
A Home Sale Contingency Clause is a part of a real estate contract that makes the transaction of an offer to buy a home contingent on whether or not the buyer’s current home is sold. If the home buyer manages to sell their home be a certain date set in the contract then the transaction will follow through successfully. However, if the home buyer is unable to sell their current property by the specified date then the contract will not be completed. This type of clause exists to protect the home buyer in the event they purchase a new home but are unable to sell their current. This would result in the home buyer having two mortgages at the same time, which is something they will likely be unable to afford.
What Types of Clauses Exist
When it comes to Home Sale Contingency Clauses there are two different iterations of the clause that usually appear in home purchase contracts. The two types of clauses are:
- Settlement Contingency A Settlement Contingency is used in a contract if the home buyer already has a contract prepared for their current home and a planned closing date. Because the contract has not technically been closed yet this kind of contingency protects the home buyer should the sale of their current home fall through for any particular reason. This way if they are unable to sell their home their contract will be terminated preventing them from taking on two mortgages at the same time.
- Sale and Settlement Contingency This type of contingency is similar to a Settlement Contingency except for one key difference. This type of contingency is used if the buyer has not yet accepted an offer for their current property. This plan allows the home buyer to consider other offers for their home before accepting and moving forward for the sale of their home.
What Should You Know as a Home Buyer
For most people looking to buy a new home you have to sell your first one as a part of the process. A Home Sale Contingency will give you, the buyer, the time you need to sell your home before fully committing to a new mortgage on the home you are trying to purchase. This type of clause helps you as the buyer because it allows you to transition smoothly to your new home without having to worry, because the home you are trying to purchase is already considered to be “secured”.