What is a Suitable Housing Contingency?
There are a couple of different interpretations of what exactly a suitable housing contingency is and how real estate agents or attorneys can write this clause into a real estate contract. To put it in the simplest terms possible a suitable housing contingency is the seller’s version of a home sale contingency.
A suitable housing contingency is included in a real estate sales contract as an offer to purchase a property with the understanding that if the homeowner selling the property is unable to secure their next home that the seller can cancel the offer to purchase their home.
Most often this is included in a contract when a seller wants to avoid any possible period of being without a home until they find their next one. While this is an understandable item to include, simply placing a blanket contingency into a purchase agreement that states the agreement is contingent upon the seller securing suitable housing can present a few issues for the home buyer.
The broad language in the contract around the subject could allow the seller to cancel the transaction at pretty much any time. A buyer or seller could complete half of the paperwork and items required for closing in the due diligence process and the seller could exercise their right in the suitable housing contingency clause and cancel at any time.
Many times, a suitable housing contingency will not include costs the buyer has spent on the due diligence process up to this point in the transaction. Not including any payments that are typically made within 2 to 3 weeks into the transaction of purchasing the home. This can include items like paying for an inspection and an appraisal and maybe even some money spent on attorney’s fees. This can put a buyer out of hundreds or even thousands of dollars.
Some reasonable compromises buyers and sellers can make when a suitable housing contingency has been put into a contract by the seller.
Later closing date
If you as the buyer have the flexibility to extend out the closing date this can give the seller extra time to find and purchase their next home instead of including the suitable housing contingency. One thing to consider in offering this in negotiations with the seller however is the mortgage interest rate lock.
When a buyer has made an offer on a home and the seller accepts and it is under contract, most lenders lock in an interest rate for somewhere between 30 to 60 days from the actual closing date of the sale. If this closing date is past 60 days from the loan application a buyer might need to pay an extra fee to extend the rate lock or float the rate before locking it.
Flexible closing date
One option to come back to the negotiation table with and offer the seller is to consider a flexible closing date. This only works if the homebuyer has the ability to be flexible. It may be enticing for a seller to have the ability to choose the closing date for one or more points during the real estate transaction.
Flexible closing dates can be added to a real estate contract with language such as “at the signing of purchase and sale agreement seller can choose a closing date of anywhere between blank and blank “. The wording can also include that the seller can also change this date within seven days of any date specified in the contract timeframe with plenty of notice given to the buyer.
Return the contract with an offer for a limited suitable housing contingency
The buyer can offer the seller a suitable housing contingency with more restrictions than the one that is currently included in the contract. They can tighten the restrictions on the suitable housing contingency by offering a certain amount of time like two or three weeks for the seller to obtain suitable housing.
This allows the seller more time to conduct a home search while their home stays under contract, but gives a buyer the peace of mind that after a certain amount of time has passed the real estate purchase will continue without any risks of the seller backing out.
Buyer cost reimbursement
As a way of protecting oneself, a buyer could include a counteroffer of having any buyer costs that were paid out during due diligence and the closing process reimbursed if the seller backs out of the transaction at any time. This will help protect the buyer from paying out large sums of money for appraisals and other things while also encouraging the seller to take their new home purchase seriously as they will incur a large expense.
For more information on purchasing a home in Saint George and surrounding areas please contact me anytime.
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