Secondary Offers

Owners who accept offers contingent on the closing of a buyer’s real estate (commonly called a sale of home contingency) typically have a provision in that offer allowing them to accept “Secondary Offers”. The secondary offer attractive to a seller is one that is reasonably similar to the offer they have and more certain to close.

A buyer who makes a secondary offer is wise to give the seller at least a few days to untangle themselves from the primary accepted offer. By agreeing to “sit tight”, promising to not withdraw their offer for  a set number of days, the secondary buyer gives the seller the time they need to force their buyer to make a decision to commit or step aside. We won’t know the number of days the seller needs to wrap things up with the first buyer, but we can assume it is at least 3 days. The more time the seller is given the more attractive the second offer becomes.

A well prepared secondary buyer will provide a know questions left unanswered pre-approval letter  or proof of funds available to close. The more risk the buyer assumes, the more likely the seller is to find the offer attractive enough to attempt to let the first buyer go and get into business with buyer two.

There is no certainty in becoming primary by having an accepted secondary offer. While somebody may suggest the seller is able to move a secondary buyer to primary, be cautious. The primary buyer does have some leverage to maintain their position. Secondary buyers who are made primary, should require proof that the seller is free and clear from buyer 1. A cancellation and mutual release agreement signed by all parties may be sufficient proof. A licensee who participates in moving a secondary buyer to primary position without a cancellation and mutual release from the first buyer is in a perilous position.

 

 

 

 

 

 

Closing of Buyer’s Property Contingency…getting from here to there

Still known as the “Subject to Home Sale” contingency, owners in a Seller’s-Market are unlikely to accept an offer where the buyer has to sell real estate before being committed to close.  You’re still going to see these offers so let’s see how to protect the Seller from being trapped and the Buyer from being homeless.

Seller’s Perspective:

First issue to resolve is to know if the buyer has an accepted offer on the real estate named in the contingency. “…contingent on the closing of the sale…” may imply the buyer has an accepted offer on their property, but that could be incorrect. The contingency is designed to allow for any status of sale, including where a buyer has not placed their property for sale. By the way, there is nothing that says this offer is contingent on sale of “buyer’s home”. Any property the buyer owns can be named in this contingency.

Second issue: Closing of buyer’s property is typically written to run to the date of closing. This keeps the buyer flexible to walk away right up to the time of closing if their sale doesn’t close. To balance this risk, the contingency allows the Seller to deliver a Notice to remove this contingency provided the seller accepts a secondary offer. Buyer’s who need the protection of this contingency run a high risk of being homeless unless they have protection in this Offer or the one they accepted with their buyer.

Buyer’s Perspective:

As long as the seller can serve notice to me to commit or step aside, I have a risk of being bumped from the home I want to buy, and still committed to the buyer who wants my house. To keep me safe, I want to negotiate some protection with you the seller of the house I want to buy. Here’s a suggestion:

When the Buyer accepts an offer on (address of property) which is not contingent on the sale or closing of any other real estate, buyer shall notify Seller in writing. From the time of delivery of said written notice, the provision of this Offer providing seller the right to deliver Notice of Accepted Secondary Offer to buyer shall be suspended.

Now that’s all fine for the buyer, but what about the seller? If the buyer’s offer becomes void, the seller should be able to exercise the Notice provision, right? We need some language to reinstate the Notice/bump right for the seller.

Buyer shall keep seller reasonably informed of the status of the offer on their property. The right of Seller to issue Notice of accepted Secondary Offer shall be instated immediately if buyer or buyer’s buyer breaches their contract or this accepted Offer.

I don’t represent this language to be perfect. Certainly an attorney could craft something more definitive. Use my idea to help you think through the steps and precautions your clients want.