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Q & A – Contingent Sale Addendum

by admin on July 20, 2011

in Questions & Answers

Source:  Reprinted from the July 20, 2011 edition of the N.C. REALTOR Report published by The NC Association of REALTORS

QUESTION:  I am preparing an Offer to Purchase and Contract (form 2-T) on behalf of a client. The client needs to sell her current home in order to purchase a new home so we are using the Contingent Sale Addendum (form 2A2-T). My client doesn’t want to spend any money on inspecting the new home until she knows that her current home is under contract. In paragraph 1 (j) of the offer, in the space where I fill in the expiration of the due diligence period, can I put in the words: “three weeks after buyer’s house goes under contract”? If so, I would insert a settlement date approximately three months from today.

ANSWER: While the language you propose is legally permissible, a seller would be extremely unwise to sign a contract with that provision, unless your buyer is paying a hefty due diligence fee. You will recall that under the new Contingent Sale Addendum, the seller no longer has the right to kick out a buyer if the seller finds another interested buyer. Once the seller signs a contract with a Contingent Sale Addendum, the seller may have to wait until the end of the due diligence period to see if the buyer’s home goes under contract. If the buyer’s home is not under contract by that deadline, the contract between buyer and seller is null and void and the seller can sell to a third party.

The language you propose does not set a firm expiration date for the due diligence period. Instead, the expiration date would depend totally on the buyer signing a contract to sell her property, a decision that is out of seller’s control, and an event that may never take place. In this scenario, the seller could easily have to wait until the settlement date to see if the buyer will close, and he would be unable to effectively market his property to third parties during that period.

In order for the seller to maintain control of his property in the contingent sale context, we recommend that the seller instead insist on a definite, and relatively short, due diligence period, as well as a settlement date that is not too distant. If there is no contract for the buyer’s property by the expiration of the due diligence period, but the seller has reason to believe that such a contract is imminent, or is otherwise willing to allow the buyer more time to get their house under contract, the seller can always agree to extend the due diligence period. Form 330-T can be used for this purpose.

Source:  Reprinted from the July 20, 2011 edition of the N.C. REALTOR Report published by The NC Association of REALTORS


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