When navigating Chicagoland’s competitive residential real estate market, it’s important to understand the intricacies of various contract provisions, especially the existing home sale contingency. This contingency can play a pivotal role for buyers who need to sell their current home before purchasing a new one. Two primary template contracts used in the area—the Multi-Board Residential Real Estate Contract 7.0 and the Chicago Association of REALTORS® (CAR) Residential Purchase Contract—address this contingency with some unique features. Here’s how they work and what you need to know.

What is an Existing Home Sale Contingency?

An existing home sale contingency allows a buyer to make an offer on a new home while making the purchase contingent upon selling their current property. If the buyer’s home does not sell within the agreed-upon timeframe, the buyer has the option to withdraw from the contract without facing penalties. This contingency is a critical safeguard for buyers concerned about the financial burden of owning two homes at once.

Contingency Terms

The buyer can specify a period during which their offer to purchase the new home is contingent upon selling their existing home. This period is often negotiable, but it typically ranges from 30 to 60 days. During this time, the buyer must actively market their home and must disclose whether the home has been listed on the MLS or if it’s already under contract.

Kick-Out Clause

A key feature these contracts is the inclusion of a “kick-out clause.” This clause allows the seller to continue marketing the property even after accepting a contingent offer. If the seller receives a non-contingent offer from another buyer, they can notify the original buyer, who then has a set number of hours (typically 48 or 72) to either waive the contingency or walk away from the deal.

Extension of Time

The contract also permits the buyer to request an extension of the contingency period if necessary, subject to the seller’s approval. This flexibility can be useful if the buyer is close to selling their home but needs additional time to finalize the sale.

Proof of Listing

The contract may also require the buyer to provide proof that their existing home is listed for sale within a certain timeframe after the contract is signed. Failure to do so could result in the seller having grounds to cancel the contract.

Key Considerations for Buyers and Sellers

While the existing home sale contingency provides crucial protection for buyers, it can also be a source of tension in a competitive market. Here are a few things to keep in mind:

• Seller Reluctance: In a hot market, sellers may be hesitant to accept offers with home sale contingencies. Buyers should be prepared to make their offers more appealing by offering favorable terms such as a higher purchase price or more flexible closing dates.
• Waiving the Contingency: When a kick-out clause is triggered, buyers may need to decide whether they can afford to waive the contingency. This often involves securing bridge financing or determining if they can carry two mortgages temporarily.
• Negotiation Power:  Buyers with an existing home sale contingency may need to offer other incentives to strengthen their position, such as a higher purchase price or flexible closing dates. 
• Documentation: Both the Multi-Board 7.0 and CAR contracts require buyers to actively market their existing home. Buyers should be prepared to provide proof of listing and demonstrate they are making efforts to sell their current property.

Make Sure You Have an Experienced Real Estate Attorney in Your Corner

Understanding how the existing home sale contingency works in both the Multi-Board 7.0 and Chicago Association of REALTORS® contracts is essential for anyone looking to buy or sell in the Chicagoland real estate market. These contingencies can provide much-needed flexibility for buyers, but they also require careful planning and communication between buyers and sellers and their attorneys. 

By working with experienced real estate professionals and staying informed about the terms of these contracts, buyers can make confident offers and sellers can negotiate effectively, ensuring smoother transactions for all parties involved.

For more information on the home sale contingency, schedule a call here to speak with us.  It’s vital to know the details of the home sale contingency before submitting or accepting an offer with the home sale contingency listed.