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Contingent on Sale of Buyers Property

by | Jul 10, 2017 | Contracts and Forms

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

 
Contingent on Sale of Buyer’s Property
 

Q:        I am a Listing Agent and ten days ago the Seller accepted Buyers’ Offer which included the CAR Contingency for Sale of Buyer’s Property Addendum (“COP”) form.   The Seller has notified the Buyers that there is an accepted Back-Up Offer and, within the 3-day period specified in Paragraph 8A, the Buyers removed all of their Contingencies.  However, the Buyers sent us a letter from a relative stating that the Buyers have funds to close even if their home does not sell but the letter provided no other verification of funds.  My Seller does not believe that that letter constitutes proper “verification of sufficient funds to close escrow” and wants to immediately cancel.  Is it safe for my Seller to cancel?

 

A:       There is no simple “Yes” or “No” answer to this question. CAR’s Contingency for Sale of Buyer’s Property form (“COP”) remains one of the most difficult CAR forms to use despite repeated efforts to modify and streamline that form.  The lack of a definition for what constitutes “verification of sufficient funds to close” is one such difficulty.  Depending upon who the Buyers’ relative is and precisely what was stated in that letter, the Buyers may have met their verification requirement; however, only the Seller’s own qualified California real estate attorney can assess the Seller’s risk in attempting to cancel the Purchase Agreement for that reason. 

 

Even the most careful real estate professionals can easily miss the hidden traps in Paragraph 8 and other problems with the COP form.

 

  1.  DELAYED NOTIFICATION RIGHT:  Before the Seller seeks legal advice, double check to determine whether Paragraph 8B was checked. If 8B was checked, the Seller’s right to make demands on the Buyer may not have officially started and then the Buyer would have more time to provide the verification of funds.  Too often the Seller and Listing Agent fail to notice that by checking one of the boxes in Paragraph 8B of the COP form, the Seller’s Notification to the Buyer may not be given until either a specified period of time has elapsed or, if the second box is checked, the Notification may not be given at all during the term of the Purchase Agreement.  The Buyers’ willingness to remove their contingencies does not negate the time frames in Paragraph 8B and thus the Seller may not be able to cancel if the Seller’s notification to the Buyers was premature.

 

  1. NOTICE TO PERFORM:  As is true with all Seller’s cancellation rights, there are pre-requisite steps such as sending a Notice to Buyer to Perform and it is unclear in the COP form whether or not such a Notice may be required if the “verification” provided by the Buyers is deemed by the Seller (or anyone else) to be inadequate. 

 

  1. CANCELLATION RIGHTS:  Sadly, the COP form is internally inconsistent on the issue of the Seller’s cancellation rights for failure to provide the verification of funds detailed in Paragraph 8A.  Paragraph 5 details four instances when the Seller has a Right to Cancel.   Paragraph 5D references a Buyer’s failure to remove the contingencies specified in Paragraph 8A but makes no reference to the Buyer’s failure to provide Verification of Funds as a legitimate, separate basis on its own to cancel the Purchase Agreement. It will thus be up to the Seller’s attorney to determine if this internal inconsistency in the COP form makes it riskier for the Seller to cancel in the face of the Buyer’s partial performance of the requirements in Paragraph 8A.

 

  1. ALTERNATIVE LANGUAGE:  Even if a Seller is willing to accept an offer that contains a Contingent Sale Provision, the Seller is not obligated to accept the COP form.  The Seller can counter out the COP form and use a simpler ”Contingent Sale Addendum” such as the one attached to this Weekly Tip.

 

PRACTICE TIPS:

 

1.  When using a COP form, be sure to read through it carefully.  Complete the top portion and Paragraph 1 fully.

 

2.  Read each of the paragraphs and check the appropriate boxes.

 

3.  Pay special attention to paragraph 8.B.  Note that there are TWO CHECK BOXES in that paragraph.  The last check box, if checked, prohibits a seller from giving the buyer the Notice to remove the contingency for the sale of their property and to provide seller with verification of funds to close without selling buyer’s property.

 

4.  As an alternative, you can use the FORM BELOW ( “Contingent Sale Addendum”) which is simpler than the COP form.


WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.

 

© Copyright Broker Risk Management 2017                                                 07/07/17

 

FORM FOLLOWS:




CONTINGENT SALE ADDENDUM

 

This is an Addendum to that Purchase Agreement dated _______________ by and between _________________________ (Seller) and ________________________ (Buyer) for that Property commonly known as __________________________________________________.

 

 

1.  This Agreement is contingent upon Buyer’s property, commonly known as ______________,

selling within _____ Days after Acceptance of this Agreement, and closing on or before the time frame specified in Paragraph ____ of the Agreement or _____________.  When Buyer has accepted a contract on the sale of their property, Buyer shall provide written notice of sale to Seller; however, this Purchase Agreement shall still be contingent on Buyer’s property closing as specified above. 

 

2.  Seller shall have the right to continue to offer the Property for sale.  If Seller accepts a bona fide written back-up contract from a third party prior to Buyer removing the sale contingency in writing, Buyer shall be given written notice by Seller.  Within three (3) Days of receipt of said notice, Buyer shall either (a) sign and deliver to escrow cancellation instructions terminating the Purchase Agreement with Seller and have all unused deposits returned to Buyer or (b) remove the contingency on the sale and close of escrow of their property. 

 

3.  In the event that Buyer chooses for any reason to remove the contingency on the sale and close of their property, Buyer shall at the same time as the contingency is removed provide Seller with written proof from a financial institution that Buyer has sufficient funds needed to close escrow within the time frames agreed to in the Purchase Agreement. 

 

4.  By removing the contingency on the sale and close of their property, Buyer understands, acknowledges and agrees that Buyer’s ability to obtain financing is not contingent upon sale and/or close of any property. 

 

5.  Other Terms: ______________________________________________________________

 

____________________________________________________________________________

 

____________________________________________________________________________

 

All other terms remain unchanged.

 

Buyer: ______________________________________                    Date: ___________________

 

Buyer: ______________________________________                    Date: ___________________

 

 

Seller: ______________________________________                     Date: ___________________

 

Seller: ______________________________________                     Date: ___________________