By Dian Hymer
It may be difficult to find a seller who's willing to accept an offer that's contingent on the sale of your current home. But, if you do, the seller is likely to want a release clause in the purchase contract.
A release clause-also called an "escape" or "kick-out" clause-is a clause in a purchase contract that allows one party to withdraw under certain circumstances.
From the seller's perspective, an offer that's contingent on the sale of another property is risky. If the buyer's home doesn't sell, the seller's home goes back on the market.
When a release clause is included in the contract, the sellers can continue to market their home. If they receive another acceptable offer, they must accept it in a backup position subject to the cancellation of the first offer.
A release clause usually includes a time frame within which the contingency in question-the contingent sale contingency in this example-must be removed. It's usually a 72-hour period when a release clause is used in conjunction with a contingent sale contingency. But it can be any time period that the buyer and seller agree to.
If the sellers accept a backup offer, they notify the first buyers in writing that they have 72-hours within which to remove the contingent sale contingency from the contract. If they are unable to do so, the first contract is cancelled and the sellers proceed with the second contract.
First Time Tip: When a seller has accepted a contingent sale offer with a release clause, the listing will be categorized as "pending release" in the Realtors' Multiple Listing Service (MLS). When agents search the MLS for listings to show their buyers, they often overlook those listings that are "pending sale". They assume that the home is sold.
However, a listing that is "pending release" might present an opportunity for a buyer who can make a contingency-free offer. Make sure your agent shows you listings that are "pending release".
Contingent sale buyers would rather not have a release clause because it increases the vulnerability of their contract. A non-contingent buyer can bump them out of first position.
An approach that has worked successfully is to request that the release clause not go into effect until several weeks after contract acceptance. If the seller agrees, and your home is ready to put on the market, you may be able to find a buyer for your home before the release clause takes effect.
The use of a release clause is not just restricted to contingent sale offers. It can be used anytime the buyers and sellers agree to include a release clause in the contract.
An escape or release clause is not typically used with standard contingencies such as inspection and financing contingencies. But it can be effectively used for an unusual situation that puts one of the parties--buyer or seller-- at a disadvantage.
For example, the wife may have seen the property; the husband has not. If the wife makes an offer contingent on her husband seeing and approving the property, the seller might want a release clause to be in effect until the husband approves the property.
Or, if the sellers are selling contingent on finding a replacement property of their choice, the buyers may want a release clause included in the agreement. This would allow the buyers to notify the sellers if they find another home they want to buy.
The Closing: In this case, if the sellers don't remove their contingency from the contract, the buyers can withdraw from the contract and buy the other home.
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