The Offer to Purchase and Contract and Contingent Sales
QUESTION: Our firm often hears from homeowners who are interested in purchasing a new home but need to sell their current home to qualify for financing. If such a homeowner signs a purchase contract on Form 2-T and represents that they must sell their current home to complete the purchase, does that representation make the contract contingent? If it does not, then how should we fill out the contract to protect the buyer?
ANSWER: The buyer’s representation in the Offer to Purchase and Contract (Form 2-T) regarding their current home is merely information provided to the seller. It does not create a contingency. The purpose of that representation is to enable the seller to evaluate the strength of the buyer’s offer. It is not intended to allow the buyer to terminate outside the Due Diligence Period and obtain a refund of their Earnest Money Deposit in the event they cannot sell their current home.
If a buyer wishes to create a true contingent sale using Form 2-T, then they must obtain an attorney-drafted, custom addendum and attach it to the contract.
If a seller will not agree to a custom addendum, then the buyer should structure the contract for a new purchase in a way that allows them to accommodate the sale of their current home. For example, the Due Diligence Period and Settlement Date may be pushed out further than is typical in other transactions. The Due Diligence Fee may be less than what the buyer would otherwise offer to account for the uncertainty of selling their current property. The amount of the Earnest Money Deposit should reflect the risk that the sale of the buyer’s current home may not happen at the last minute.
Once the buyer is under contract to purchase a new home, they should try to close on their current property before the end of the Due Diligence Period, or at least be reasonably satisfied that the sale of current home will close prior to settlement of the new home. If the sale of the buyer’s current property at all becomes uncertain, the buyer should consider terminating their purchase of the new property.
Agents are reminded that a client’s inability to complete a transaction is a material fact. If the buyer cannot complete the purchase of the new home, then they must inform the listing agent or seller.
Release Date: 2/20/2025
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