Home Sale Contingencies

Almost every real estate contract that crosses my desk features a provision allowing the buyers to opt out of the contract (and receive their earnest money back) if they are unable to obtain a mortgage by a given date and give notice of this fact to the sellers.  Another contingency (one that's less common) involves the buyers' sale of their home on or before a certain date.  If buyers don't sell their home by that date (and give notice of this fact to the sellers), then they can opt out of the contract and again receive their earnest money back.

For the most part, sellers hate home sale contingencies, and it's hard to blame them.  The contingency isn't based on an action taken (or not taken) by the buyer; rather, it's based on whether some third party to the original real estate contract (1) makes an offer on buyers' home and (2) closes on the purchase of buyers' home. 

Another problem with home sale contingencies is timing.  It's fairly typical to see a timeframe for the purchase and sale of a home as follows:

January 1: parties sign contract

February 1: mortgage contingency expires

March 1: closing on sale

If the buyers are unable to obtain a mortgage in this scenario, the sellers have lost only one month of market time for their home.  But a home sale contingency almost always expires on the day of closing, which means that the sellers could walk into their closing on March 1 and learn that the deal is off.  That's a tough pill to swallow, especially if the sellers are also purchasing a home on the same date (which is usually the case).  The sellers may be in default on their own purchase (unless they also had a home sale contingency), and they will have lost two months of market time.  (While most home sale contingencies allow the sellers to continue showing their house to other potential buyers, interest in a home already under contract to another buyer tends to be fairly low.)

About the only situations in which you'll see sellers agree to a home sale contingency are situations where the sellers have little bargaining power: the real estate market is bad, or the sellers have to move quickly, or the home is on the market at a bad time (like during November and December), or the home has been on the market for a long time.  Even in those cases, buyers may need to offer a premium (in terms of purchase price) for the home sale contingency to be accepted.