The Housing Market of 2021 is roaring out of the gates with huge demand in South Florida as evidenced by an extremely HOT housing market and the number of days a home sits on Active Status dwindling in many locals! In some neighborhoods, the average time on market may be 30 days, but in their very active market right now, many homes are being snatched up within days of hitting the MLS!
Both Buyers and Sellers are seeing the effects of extraordinary demand that is unequally balanced against a very tight inventory of residential real estate, such that both Buyers and Sellers need to be very savvy in order to succeed in this highly explosive market if they want to be successful.
With this in mind, it’s a tricky needle to thread for Seller’s wanting to make the best choice when reviewing Purchase Offers and weighing the value of each potential Buyer’s ability to close the deal, noting that often there may be multiple offers being made in a very short period of time after a home has hit the market for sale.
Likewise, Buyers are anxious to put themselves in the best position to attract the approval of Sellers for a home they want to pursue, knowing that they might be just one of many submitting an offer. A good number of folks are currently experiencing the disappointment of finding a home they love, deciding to submit an offer, only to find they are one of many in the mix and in many cases, find they are losing out to stronger offers. It can be emotionally draining for Buyers and a daunting process. This is when it’s especially important to be working with a Realtor who is extremely responsive to your needs and focused on helping you present your Offer in the best light.
This article addresses some of the realities around what options Buyers and Sellers have when a Buyer chooses to submit an Offer on a home they love, but need for their Offer to include a Contingency (Addendum-X) that states they must sell their own home in order to close on their new purchase. Obviously that’s not the strongest position to be in when making an offer against a home that might see multiple Offers and one that many Sellers would prefer not to deal with, but the reality is that this option comes up frequently and both parties should know what options are available to them in order to minimize their respective risks.
To the Seller, the buyer that has limited to no contingencies is obviously the most attractive because they have the least potential for the deal to go south.
So, what might Buyers and Sellers do to try to minimize their risk of an Offer that has a Contingency for the Buyers to get their own home sold and where both the buyer and seller have some degree of “safety” in moving forward?
This is where an Addendum in the Florida FAR/BAR contract offers both parties an option by using the Addendum-X clause, better known as the “Kick-Out” clause. This Addendum for a Seller allows them to counter balance a Buyer’s Contingency for the Sale of their Home (Addendum V) by restricting the Buyer’s contingency and providing the Seller with an ability to continue marketing their own home and even to accept Back Up contracts by the Seller. When incorporating this Addendum-X into the process, the Seller provides themselves with an opportunity to continue to review alternate offers, and if one presents itself that is stronger for the Seller, then provide the Buyer with a deadline (usually 48 or 72 hours) for either terminating their contract with the Seller because they still need the contingency to sell their own home, or to cancel that contingency and agree to move forward with that Addendum deleted.
By utilizing both Addendum together, it creates a more leveled risk for each party.
Whether you’re a Buyer or a Seller, it’s important to understand the specifics of a sales contract before making a commitment for such a significant purchase. Should you decide to accept or make an Offer with either Contingency, make certain that you are very clear in your understanding. As a Seller accepting an Offer with an Addendum V, make sure you include language that requires a Buyer to provide proof or evidence of the Buyer’s home sale, and if you are a Buyer accepting a contract that includes Addendum-X, be certain that the contract includes specific details outlining that the Buyer’s earnest money deposit (escrow) will be returned to the Buyer if the Seller exercises their right with a Kick-Out clause.
Hopefully both parties will be working with a licensed Realtor when negotiating these types of detailed contracts and retaining professional advice, or if need be, consulting with a Real Estate Attorney on the specific language in your sales contract to ensure your interests are protected.