Protecting the Seller when there is a Conditional Offer

Real Estate Agent with Royal LePage Your Community Realty, Brokerage Inc.

A condition that a Buyer may put in an Offer to Purchase is that the purchase of the Seller's home is conditional upon the sale of the Buyer's home.  In a slow market or with a cautious Buyer, this condition protects the Buyer from owning two homes at the same time. 

An astute Seller / Agent will ensure that this condition is countered.  The seller adds a clause to modify the conditional sale.  It allows the Seller to continue to offer the home for sale and accept new offers.  However, before accepting an offer from a third party, The Seller gives the first Buyer the opportunity to waive or complete all conditions on the sale of the home within a set number of hours. 

Here is an example of how this works:

Michael and Sue have their home for sale.  Melinda, the Buyer, loves the home and puts in an offer.  Included in Melinda's offer is the condition that she must first sell her home before completing the offer on Bill and Sue's home.  Melinda has included a time frame of four months to have her home sold.  If Bill and Sue accept this offer as stated, they will have their home conditionally sold for up to four months without knowing if Melinda's home will actually be sold during this period.  Bill and Sue want to continue to try to sell their home and insert a clause in the Agreement for Purchase.  This clause will state that Bill and Sue will continue to sell their home.  If during the four months, they receive an offer that is acceptable to them, they will provide Melinda with a predetermined amount of time (say 48 hours) to complete the Purchase Offer (likely by waiving her conditions) or the deal with Melinda will die.  Bill and Sue will then be free to accept the new offer.  Melinda has just been given the Right of First Refusal on the purchase of Bill and Sue's home.

The Offer to Purchase is a contract, covered by contract law.  The clause on First Refusal is a legally binding clause that ties all parties (Seller(s) and Buyer(s)) to a condition of sale. 

If you are in a similar situation as Bill and Sue or such as Melinda, discuss your offer and counter offer options with your real estate sales representative and/or your lawyer.  In a hot market, with houses selling rapidly, Sellers don't want to wait to sell their home so a Buyer would have to increase the amount of the offer to make it more acceptable for the Seller to wait.  In a slow market with no offers received for weeks, the attractiveness of a sale, even with the condition to have another home sold increases. 

A domino effect can occur when two or more homes need to be sold in order for a deal to close

Comments (2)

Terry McCarley
Coastal Real Estate - Cape Coral FL - Cape Coral, FL

Excellent information which all real esate agents need to understand.  I would never recommend a seller accept an offer subject to the buyer selling their current property without the first right of refusal clause in the contract.

Nov 29, 2010 02:36 AM
Pat Yoest
Century 21 Aadvantage Gold, 702-719-2100 - Las Vegas, NV

Thank you for the post , it is valuable information for the seller in this type of conditional offer.

Nov 29, 2010 02:38 AM