AKA – How to purchase a home prior to selling your current home. This is one of the most common ways to do it.
WHAT IS A FIRST RIGHT CONTINGENCY
It is an addendum to the purchase agreement; an addendum is an additional document providing further detail on a specific condition.
The First Right Contingency addendum is used when the sale of a buyer’s current home is needed in order to purchase their next home, but an offer on the buyer's home has not yet been accepted. The addendum states that “the purchase agreement is contingent upon the acceptance of a purchase agreement on the buyer’s property”.
Other information provided by the First Right Contingency addendum: if the buyer's home is on the market or the maximum number of days before the home is on the market, the number of days the buyer has to accept an offer on their home, and number of days to close on the new home after the contingency is removed. The contract also has the prospective buyer’s home listed. So, the seller and/or seller’s agent is able to collect information on the contingent property.
This is not used if the buyer has already accepted an offer on their current home. There is a section in the purchase agreement if the purchase is contingent upon the buyer’s home sale completing, but an offer has already been accepted.
CONDITIONS OF THE CONTENGENCY
The contingency remains until the buyer accepts an offer on their home or they choose to remove the contingency (which can happen for multiple reasons explained below).
There are many scenarios that can play out after the First Right Contingency is accepted because the home will continue to be shown and the seller is able to entertain other offers. This part can be very confusing. Here are a few examples:
If the buyer has not yet accepted an offer on their home or removed the First Right Contingency: In the event another offer is presented to the seller and they want to accept it, they are obligated to notify the buyer’s agent. The buyer then has time (set in the addendum) to decide to remove their first right contingency and continue with the purchase, or remove themselves from the transaction and allow the seller to continue with the other offer.
If the buyer removes the First Right Contingency: the purchase can proceed as stated in the purchase agreement.
If the buyer does not remove the First Right Contingency: the seller is able to continue with the other offer and the First Right Contingent offer is void.
If the buyer accepts an offer on their current home within the time frame specified in the First Right Contingency: this is the ideal situation for the buyer because they are able to remove the First Right Contingency and proceed with the purchase of the home.
If the buyer’s do not accept an offer on their home within the set time window and they are not willing to remove the First Right Contingency: their offer is void and the transaction does not move forward.
Once the First Right Contingency is met or removed, all other timelines in the purchase agreement begin, such as the inspection time period, time for closing, etc. Also, the closing is still contingent upon the buyer’s home sale closing, if that is how the purchase agreement is written. So, understand that the First Right Contingency is one hurdle, but the closing of the first home is another.
Consult your real estate agent for guidance.
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