Decoding Contingencies And Back-Up Offers
Contingencies and back-up offers represent some of the most difficult situations a real estate professional will wade through. Read on for a guide to help demystify these confusing processes.
Contingent Offers
Definition: A buyer who has a home to sell prior to completing the purchase of their home, either as a condition of their loan or out of a desire not to have two homes and mortgages.
The Process:
- Step 1: The buyer makes an offer on a home by selecting Contingency Addendum on Page 2 of the base contract.
- Step 2: Once the buyer’s home is under contract, you can use an amendment to revise the Contingency Addendum from Option 2 to Option 1, changing the status from Contingent to Pending or Show for Back-Ups. Otherwise, the seller will receive, negotiate and accept another offer — and provide your buyer with the Kick-Out Notice and Notice of Back-Up Contract. In this situation, the buyer responds with the Kick-Out Notice Response Form.
Necessary Forms:
Contingency For Sale and/or Closing of Buyer’s Property Addendum
- Fill in Lines 7-11 with the buyer’s current home address, the company and their listing agent. Check Option 1 if the buyer’s current home is already under contact, and Option 2 if it is not.
Amendment
- Revise to check Option 1 on Contingency Addendum instead of Option 2. You must submit this form to the seller before the Kick-Out Notice is given to the buyer.
Kick-Out Notice/Notice of Back-Up Contract
- This form notifies the buyer of a back-up contract and their intent to terminate the existing offer.
Kick-Out Notice Response
- Option 1 waives contingency to sale current home. There are three additional options under Option 1:
- Option A: Additional deposits are agreed upon.
- Option B: The buyer’s property is pending, and you must provide evidence.
- Option C: The buyer can purchase without needing to sell.
- Option 2 cancels the contract altogether.
Back-Up Offers
Definition: A buyer who wishes to purchase a home that already has a bona fide contract on it.
The Process:
- Step 1: The buyer makes an offer on a home that is in a Pending, Contingent or Show for Back-Up status in MLS. Add the Back-Up Contract Addendum by selecting “Other” and writing it in on Page 2 of the base contract.
- Step 2: Negotiate all terms upfront, and instruct both the buyer and seller to sign contract and attached addendum.
- Step 3: Buyer’s contract becomes the primary contract — the buyer will withdraw the offer or it will terminate.
The Forms:
Back-Up Contract Addendum
- Complete Page 1 at the time of the offer and negotiation with the seller. You’ll need the current buyer’s name and effective offer date. All parties sign the top of Page 2, and the back-up position will be completed.
Back-Up Contract Addendum (Page 2 – Back-Up to Primary Terms)
- You’ll need to complete this addendum if the buyer’s offer becomes the primary offer, and it should only be signed by both the buyer and seller in this case.
