Massachusetts Home Sale Contingencies and Right of 1st Refusal

by Bill Gassett on April 9, 2010 · 9 comments

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Massachusetts Home Sale Contingencies and Right of 1st Refusal

Gambling with home sale contingency and right of 1st refusal

If you are selling your home in Massachusetts it is possible you may see a buyer try to purchase your home with a home sale contingency.

In other words they write into the Real Estate contract that they will not have to proceed with buying your home unless they successfully close on the property that they currently own. Accepting this arrangement 99% of the time is a big gamble and probably a very big mistake!

The thought of ever recommending  one of my seller clients accept an offer contingent upon the sale of another property is just down right fool hardy. Just to be clear, it absolutely makes no difference  what kind of Real Estate market we are in either. It could be a seller’s, buyer’s, or neutral Real Estate market but that does little to change the appeal of a home sale contingency.

An offer contingent on another property closing means one thing – YOU LOSE CONTROL OF THE PROCESS!! With no guarantees of anything.

Don’t be lulled into considering this arrangement if a buyer woos you with a full price offer either because  if you never make it to the closing table what good does it do you?

As a home seller here are a few things to consider:

  • How do you know if the contingent home is priced correctly?
  • What if the property is not priced properly and the seller does not drop their price?
  • What if the home has issues discovered at a home inspection  that can not be overcome?

Is the picture starting to become clearer on why a home sale contingency is not a good idea? When you agree to accept a home sale contingency your home is off the market and you are at the mercy of the contingent home selling.

As someones trusted Real Estate adviser there is only one circumstance where I could feel good about one of my seller clients accepting this type of arrangement.

If I was marketing an extremely difficult property to sell and the person making the contingent offer had a much more salable property then I would possibly guide my seller client into considering a contingent sale.

For example, lets say the home I was marketing had some form of Real Estate functional obsolescence that made it a difficult property to sell. Lets also assume the contingent home happens to be located in a highly desirable area of town and is in mint condition. The only obstacle left in this situation is making sure the contingent home was going to be priced right. If that criteria was met this would be something a seller may want to consider as long as they were getting a fair offer on their property.

Remember too that as a seller when you accept a contingent sale you are relying on a different Realtor that you may or may not know to see this transaction through to a successful conclusion. Working in this field on a daily basis I come across a wide variety of Real Estate agents. Some are very good and others you would not want to wish on your worst enemy! This could become a key consideration in your thought process.

If not a home sale contingency what about a “right of 1st refusal”? On a number of occasions over the years, after being rebuffed on a home sale contingency the buyers agent has tried going down the road of asking for a right of 1st refusal instead.

I find that many Realtors do not even truly understand what a right of 1st refusal is! When you allow a buyer that can’t purchase a home without selling their own (contingent sale) to have a right of 1st refusal you are doing your seller client a tremendous disservice.

When I am marketing a home and a legitimate buyer comes along that wants to purchase this property, the last thing I want is to cloud the negotiations by telling them we must wait 24-48 hours (the typical time allowed) to give another buyer their “1st right of refusal”. Why on earth would I want to be required to call another buyer who doesn’t qualify to purchase the house without selling their own home to ask them if they would like to exercise their “right of 1st refusal”?

Not accepting right of 1st refusal

This is pointless waste of time! I have found that some Realtors advise their clients that this arrangement is acceptable out of pure stupidity or because it gives them a small sense of accomplishment even though they have accomplished nothing.

Allowing a buyer who doesn’t qualify a right of 1st refusal could cause the seller to end up with nothing if a ready, willing, and able buyer walks away out of frustration.

Another scenario to consider is if the buyer exercises the “right of 1st refusal”? You could certainly add language that says this buyer would forfeit their deposit if they did not close as stipulated but is that worth losing the buyer that could have purchased the home without any of this mess? Is keeping their deposit enough to mitigate a lost buyer? My answer would be NO especially if  the Real Estate market was week and values were declining.

The only time it would make any sense to accept a right of 1st refusal is if the buyer did not have anything to sell and could step forward to purchase right away if the seller required them to do so. When you come right down to it how does a right of 1st refusal benefit a seller other than making them feel good a potential buyer is interested? The point is the buyer more than likely is not in a position to buy. When they are able to purchase they can always come back at that point anyway!

So if you don’t want to lose control of your home sale process stay away from contingent sales and right of 1st refusals.  If your home is not selling you can always reduce the price to attract more buyers and get the property sold in a timely fashion.

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About the author: The above Real Estate information on Massachusetts home sale contingencies and right of 1st refusal was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Upton, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.

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{ 7 comments… read them below or add one }

Marilyn Messenger, CRS April 9, 2010 at 2:57 pm

Great post. I competely agree – imagine trying to buy any other product by saying I’ll buy it “if” I get the money…I don’t think so! One of my first quesitions to a potential buyer is “do you have to sell in order to buy?” It’s amazing how often their faces just go blank – they have no idea what I’m talking about…so I explain it and then they tell me about their friend who just did it! Next…

Bill Gassett April 9, 2010 at 4:14 pm

Marilyn when I meet with a potential client for the 1st time I also discuss whether or not they need to sell their home. The “chicken and egg” question always comes up in Real Estate. Most people can not afford to buy a home without selling their current home 1st. Like you mention there are some folks that are under the wrong impression that there is no issue because they can just throw in a home sale contingency. WRONG!

Robert Whitelaw June 20, 2010 at 8:23 pm

As a broker in California, I have to say that I disagree. Legal differences between my state and yours may play into this, but let me explain from the left coast perspective. Whether or not this scenario is bad for your seller is completely up to you and how you write/amend the contract. In my 20+ years in real estate, I have found that simply spending some time writing the contact that best fits the circumstances and challenges can give your seller the ability to continue marketing the home effectively and still keep that contract contingent on a home sale in play. Your example of losing a buyer because of some wait period relating to the right of first refusal has never even come into play since 99% of the time, the offer presented by the buyer gives the seller more time to accept the offer than the time required for first refusal.

However, I do agree with the idea that most agents really do not grasp the potential pitfalls of these types of agreements. You point out some excellent facts that any agent should be fully versed with before including any of this in a contract. Any agent that simply goes along with these kinds of things without thinking it through and working to change the language of the agreement to their clients best interests is simply not earning their money.

I think that in the final analysis, the truth is that this can be useful IF (and only if) the agent is doing their job – and well. Part of doing that job well is being savvy enough to know when this can work for the best interests of your client and when it cannot.

Having said all that, a contingent on sale offer would almost NEVER be the one I would advise my clients to take if they had multiple offers or if their market was a more seller oriented one.

I would guess that the one thing we can all agree on is that these kinds of offers would fall into the category of “The Last Resort”.

Cheers,
Robert

Bill Gassett June 21, 2010 at 1:38 am

Robert I am sure there are customary differences in how Real Estate operates from coast to coast and probably something as simple as a contingent sale could be as well. In regards to your comment about writing the contract such that you give the ability for the seller to continue to market the home, as well as keeping the home sale contingent contract in play my question would be how and why a buyer would even be interested in that scenario? What does it do for them? As I am reading this….NOTHING!! Why would the buyer not just write the offer when they are ready willing and able? If the market is poor the value may drop in that time frame. As you have explained this I see no benefit really to either party. The bottom line is you don’t have a sale!

juliagulia March 14, 2011 at 11:36 pm

I live in MA and the Right of 1st Refusal in our condo association means if the seller accepts an offer, then anyone in our condo association has a chance to match that offer and purchase the condo ourselves.

Diana Torres-McCann February 13, 2014 at 2:28 am

I have a question and realize it’s been a while since anyone was on this topic. I am a newer real estate agent in Texas and have just been offered on contingency for my seller. I want to help my client out as much as possible but after reading all the responses i’m a little worried. The offer we have received is contingent about the buyer’s home selling, however it’s already under contract. Would this be something to consider or am I still placing my client in a terrible position?

Bill Gassett February 13, 2014 at 2:54 pm

Hi Diana – having a home sale contingency is certainly not a good thing for your client. It takes all the risk from the buyer in the sale and puts it in the lap of the seller. The buyer is having their cake and eating it too with this contingency. What if the sale of the home they are selling falls apart? The only person who loses is your seller.

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