Contingent Sales with Release Clause
Hi, everybody. This is Doug Buenz with the 680 Homes Group at 680homes.com. Welcome to another installment of Inside Real Estate.
Today’s topic is Release Clauses in Contingent Sales.
What is a release clause in real estate?
So contingent sales are simply when you, the buyer make an offer on a property, subject to them selling their home. In the contingency document, there is a release clause, and a release clause simply gives the seller the opportunity to cancel a contingent buyer if they accept another offer. We call this bump, so you can bump a contingent offer with another offer if the seller chooses to. So a release clause in contract stipulates the time frame by which they have to notify the buyer that they’re canceling their agreement.
So the scenario goes like this. I am a seller. I accept a contingent offer. I get another offer that I would like to accept. I accept that offer and I have to give that buyer three days notice, which is the default position in the contract. It can be any time frame that is negotiated, but let’s say three days. I give that buyer three days to remove all contingencies including their sale contingency and firm up on their contract, or I can cancel it as the seller. So that’s what a release clause is intended to invoke.
So as you can see, the release clause really protects the seller against being on the market forever with a contingent buyer who can’t get their home sold.
This raises some questions. Number one, does it have to be three days? No, it can be any time period that is negotiated between the buyer and seller. You can make it a one-day notification. Hey Mr. Buyer, we will take your contingent offer but we are giving you the one-day to firm up in the event we accept another offer.
Does the other offer have to be a better offer? No, it does not. It is at the seller’s discretion. They could accept a lower offer if it was all cash or if they felt it had a higher probability of closing.
Could they accept another contingent offer and then bump your contingent offer? Yes, they can. In the contract, there is no stipulation for that eventuality. The seller can accept any offer they feel is in their best interest.
There is another aspect to the release clause and that’s called the lockout clause, or the delayed right to notify clause. What this means is, if the seller says, “Yes, I will accept your contingent offer,” the buyer can say, “That is great but we want 30 days,” or two weeks, or 10 days, or 45 days, “to get our home sold without the threat of having our contract bumped.” So that’s called a lockout period. That locks out the seller from accepting another offer and canceling your offer. So that is another way the buyer can protect themselves, because no one wants to go through the hassle of putting their home on the market, and getting it ready and staged, only to get their contract canceled within a day or two of getting it accepted.
So it is not uncommon for there to be a lockout clause that gives the buyer a certain period of time to get their home sold without the threat of being bumped.
So that’s the ins and outs of the release clause in contingent offers. So thanks again for watching. Be sure to like this video or share it with anybody you think might get some value out of it. And do you have a real estate question you’d like me to speak to? Just comment below and what your question is and we’ll address it in a future episode.
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