This blog post is all about the Contingency for the sale of a Buyer’s property (COP Form), And how it affects the Seller.
A home sale contingency is a clause included in a real estate sales contract or an offer to purchase. With a home sale contingency in place, the transaction is contingent on the sale of the buyer's home. If the buyer's house sells by the specified date, the contract moves forward.
Buyer is not obligated to move forward if their home does not sell. So, this limits the risk for the buyer.
The form that is used to add this contingency to a contract is the Contingency for the sale of the buyer’s property AKA COP Form. There are different ways this form can be completed, and what it means to you as the Seller. It’s important to have a detailed discussion with your Realtor if you receive an offer from a buyer and this form is included.
When accepting an offer with a contingency sale, there are 3 things to be aware of:
1. Is This Contingent Upon a Concurrent Close?
Meaning: The buyer has to sell their home and close escrow before they can close escrow on your home.
Risks: If you go all the way through the transaction and the buyers remove their inspection, appraisal, and loan contingency, and THEIR transaction on THEIR home falls through, they can cancel your transaction and get their deposit back.
2. What is the Status of the Buyer’s Property?
Meaning: Not Listed, Listed, Pending?
Risks:
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Not on the market yet? If their property hasn't been listed yet, why not? If you accept their offer, you are agreeing to take YOUR property off the market while they list their property and try to sell it.
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Listed at value? If it is listed already, why haven't they found a buyer yet? Has it been on the market for a short period? Or, has it been listed for a while- which means it could be overpriced?
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Do they already have an accepted offer on it? This means they have buyers who are potentially just waiting for them to find a replacement property (buying your home). Look at how legitimate their buyer on THEIR home is.
3. Is There a Release Clause? Or Has It Been Removed From the Contract?
Meaning: The release clause allows the Seller the right to accept a backup offer and if a backup offer is accepted, the seller would give the buyer a 2-day notice to remove the contingency to sell their home. The other option is to put a time limit on when the release clause goes into effect or remove it altogether. (no longer more or less)
Risks: If you have the release clause in effect, that means you cannot back out even if you get a backup offer. You're bound to the buyer until they default. If the release clause is implemented to be used after a # of days, then you have to wait until that # of days has passed before you can serve the 2-day notice. If there is no release clause in effect, then you can accept a backup offer and serve the notice to the buyers at any time.
