If you’re thinking about buying a home, but you currently own one, how do you go about it? Do you need to sell your current home in order to be able to afford your new home or qualify for a loan? It’s actually quite common for people to need to sell their home at the same time they’re buying a home – let’s face it, most of us don’t have a giant pile of cash from which to pull from, so we’re going to need the proceeds from the sale of your current home to help you buy the new one. We’ve seen situations where several home purchases and sales are tied together, which can make for a precarious situation if one of the sales falls apart. But, with some patience and skill, you can manage to sell your home and buy a home all at the same time.
Buying a Home When You Own a Home
A lot of people don’t like to put their house on the market until they’ve found the perfect home, but we find that it usually results in a much weaker position on the buying side. When you make an offer on a home that is contingent on the sale of your home, you are asking the sellers to place their trust and faith in the sale of your current home. What if you’re priced too high? What if no one makes an offer on your house? The seller you’re buying a home from has to worry about all of this. The best thing you can do is get your house on the market right away. If you get an offer on the home, that just means we need to find you one right away and get it under contract.
Addendum for Sale of Other Property by Buyer
In Texas, we use a form called the “Addendum for Sale of Other Property by Buyer” to tie the purchase and sale together. As usual, let’s break down the form and talk about each section.
A. The contract is contingent upon Buyer’s receipt of the proceeds from the sale of Buyer’s property at ______________________ (Address) on or before _____________, ____ (the Contingency). If the Contingency is not satisfied or waived by Buyer by the above date, the contract will terminate automatically and the earnest money will be refunded to Buyer.
NOTICE: The date inserted in this Paragraph should be no later than the Closing Date specified in Paragraph 9 of the contract.
This paragraph sets up the contingency – making the purchase of the home depend upon the receipt of proceeds from the sale of the buyer’s home. Notice the words in bold – they are written that way on the form and if you remember from previous posts, anything in bold means it’s very important to the terms set forth (and probably comes from a lawsuit before it was in bold and now they are attempting to make sure everyone understands). The contract for the new home requires the buyer to sell their current home and use the proceeds to purchase the new home. The home must sell on or before the date listed in this paragraph. If the sale does not go through and the buyer does no receive the proceeds from the sale by that date (or before), the contract on the new home terminates immediately and the buyer is entitled to get their earnest money back.
B. If Seller accepts a written offer to sell the Property, Seller shall notify Buyer (1) of such acceptance AND (2) that Seller requires Buyer to waive the Contingency. Buyer must waive the Contingency on or before the ____ day after Seller’s notice to Buyer; otherwise the contract will terminate automatically and the earnest money will be refunded to Buyer.
While the new home is under contract, the seller may continue to solicit offers and if they receive a new offer that they wish to accept, they may do so. At that time, they must notify the first buyer (that’s involved in the contingency) that they 1) have accepted a new offer, and 2) that the buyer must waive their contingency on or before the timeline set in this paragraph. So if this form said the 3rd day after the seller’s notice is given, the (original) buyer would have three days after the seller tells them they’ve accepted a new offer to decide if they wanted to continue with their purchase and waive their contingency. If they waive it, they are now bound by the terms of the contract to buy the home. If they do not waive their contingency, the (original) contract terminates immediately and the earnest money is refunded to the buyer.
C. Buyer may waive the Contingency only by notifying Seller of the waiver and depositing $ ______ with escrow agent as additional earnest money. All notices and waivers must be in writing and are effective when delivered in accordance with the contract.
If the buyer wishes to waive their contingency as noted in the previous paragraph, they must notify the seller and deposit more earnest money with the title company. This amount is determined in the paragraph and can be negotiated between the parties at the time of signing the contract. This additional amount of earnest money shows good faith on the buyer’s part and a willingness to move all the way to closing. Remember, the seller is taking a risk by accepting a contract dependent on the sale of another home (and may be doing the same thing themselves), so this extra “skin in the game” shows the willingness to move forward and finalize the sale. Also noted in this paragraph is that all notices and waivers shall be in writing, which should always be the case when it comes to anything involving contracts. Do not assume something is true unless you can see it on paper.
D. If Buyer waives the Contingency and fails to close and fund solely due to Buyer’s non-receipt of proceeds from Buyer’s sale of the Property described in Paragraph A, Buyer will be in default. If such default occurs, Seller may exercise the remedies specified in Paragraph 15 of the contract.
As noted in Paragraph A at the very beginning, the buyer’s purchase is contingent on the receipt of proceeds from the sale of their home. If they cannot close on the new home because they didn’t receive those funds by the date in Paragraph A, then the buyer has defaulted on the contract. If the buyer is in default, the seller can seek remedy as described in Paragraph 15 of the contract, which we covered in Part III of our look at the One to Four Family Residential Contract (Resale). If things get this far, you should consult with an attorney before proceeding.
E. For purposes of this Addendum time is of the essence; strict compliance with the times for performance stated herein is required.
Time is of the essence is a phrase used in both English and US law to refer to the fact that strict timelines must be followed and that any delay will cause material harm to one of the parties. Simply put, don’t forget the timelines and make sure you take care of your responsibilities in the time laid out in the contract.
So while it does take a little more work and a little more risk, you can see that buying a home while selling your home is possible (and common). We should note though, when faced with a seller’s market (where the seller has the advantage over the buyer), offers with sale contingencies can be seen as less advantageous than an offer without one. Seller’s are taking a risk when accepting offers tied to the sale of another house, so you’ll need to make up for that in other areas of your offer to make it as attractive as possible to the seller.
image courtesy of Bruce Guenter
I will be putting my home up for sale soon, but I also will be buying a new house and I’m worried about how I’m going to do both of those at the same time. I like how you point out that you can put in the addendum for sale of other property by buyer. It sounds like it can protect both you and the seller so I will have to look into this. Thanks!
Using contingencies is common these days and while they do add a bit of complexity to the process, it is not impossible. Just be sure to follow the timelines and the language in your contingency.
Hey discussion . I Appreciate the insight . Does anyone know if I might be able to locate a blank TREC 36-7 copy to fill in ?
TREC provides all of their forms on their website as they are considered public documents. They do come with a big disclaimer at the top about their use however, as TREC cannot provide legal protections to non-licensees for their use.
I want a printable form for the contingency of my home selling to add to contract for sale of a house I am buying
You can download any TREC promulgated forms from their website at http://www.trec.texas.gov/agency-information/forms-and-contracts. It is important to note however, that the TREC promulgated forms are only intended for use by licensed real estate agents in the state of Texas and their use by others does not carry the same protections that they do for licensees. Texas Association of Realtors (TAR) are another matter entirely and those are to only be used by association members. You can find many of them by googling the form names although TAR has stopped a lot of the proliferation of these forms, so much of what we see out there are older, outdated forms.
We provide the text and explanation of these forms as a service to our visitors so that they may better understand the real estate transaciton process. We do not provide full forms as we believe it is always best to consult with a Realtor or an attorney before using any of these forms so that you are fully aware of their meaning and consequence.
If a seller has a sale contingency contract and the escrow has been pushed back times due to the financing issues with the buyer’s house. The date for closing has lapsed, is the earnest deposit going to be returned to the buyer?
If you’re in Texas, look to the Addendum for Sale of Other Property By Buyer. This addendum regulates how and when the contract can be terminated and what happens to the earnest money. Often the buyer will try and make the date in the first paragraph match the date of the closing of the home they are selling so that if they don’t close on the house they’re selling, they can terminate on the house they are buying and keep the earnest money. Of course, they may have waived the contingency (Paragraphs B. and C.), in which case they would not have that protection. Consult your contract and ask your agent what dates and timelines are in yours so that you can better understand where you stand currently and what your next steps should be.
Its probably a good idea to use the help of the internet to buy an sell a home. There are multiple sites you could list your home in. First of all, start placing adverts or look for a real estate agent that will help in selling your home fast.
My brother is planning to sell his home and buy a bigger one for his family. It was discussed here that it will best to put the house in the market right away. Moreover, it’s advisable to talk to professionals when planning to buy a property for sale.
Thanks for pointing out that without the addendum, the seller of your new home has to worry about the success of your current home’s sale. My husband and I want to move closer to his workplace to shorten his commute, so we’ve been trying to sell our current home and find a new home at the same time. I can see now how the variables of selling our home might dissuade the new home’s owner from choosing us. I’ll definitely ask our real estate agent about getting the addendum you discussed!
Great blog!!! I really enjoy reading this blog. Thanks for sharing this informative blog.
Now with my home, I have been thinking about getting into a new one so I will have to see about listing it for sale. Now as you said, it wouldn’t be a bad idea to buy a home when yours is for sale. I would have to see about getting some help with that as I am not the best at finding homes, granted I did find my current home on my own in the past, but it took a lot longer than I anticipated.
awesome information and posts 🙂