Does a buyer have to disclose his contingency?

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07/30/2015 | Author: Editorial Staff

My buyer client needs to close on the sale of his current home to afford purchasing a new home. Must he disclose this to the seller?

Yes. If your client’s ability to perform under a contract (i.e., close the transaction) is contingent upon the closing of another property, the contingency should be made part of the contract by using the Addendum for Sale of Other Property by Buyer. Otherwise, the buyer risks default under the contract if he fails to close because the sale of the other property doesn’t close. Default by the buyer could result in the loss of earnest money. The seller could also take action for specific performance or other remedies through the legal system, or both.

Remember, while your primary duties are to your client, you also owe a duty of fairness and honesty to the seller. If you know when an offer is made that your buyer cannot perform under the terms of a contract and you don’t disclose this to a seller, you may be breaching your duty to the seller, and there’s potential for a claim that you and your buyers have made material misrepresentations or misstatements to the seller or the seller’s agent.

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Categories: Legal
Tags: legal faq, contingency, buyers


Danny Evatt on 09/12/2015

Though I am a 4th generation Texan, I currently live and work as a REALTOR® in Washington State., though am soon to move back to my great home state of Texas.

To help cure this on-going issue (of a house to sell in order to have the funds to buy another) the Washington State forms for residential sales and purchase simply added the following language into the actual contract;

“Purchase Price. Buyer shall pay to Seller the Purchase Price, including the Earnest Money, in cash at closing, unless otherwise specified in this agreement. Buyer represents that Buyer has sufficient funds to close this sale in accordance with this Agreement and is not relying on any contingent source of funds from loans, the sale of property, gifts, retirement, or future earnings, EXCEPT to the extent as otherwise specified in this Agreement.”

It seems to me this problem/issue could be more easily solved (and made more clear for all those involved) by slightly adjusting the language in the TREC Residential Contract by simply having the buyer clarify and attest to the source of the funds to purchase the home.

Jeff Cranston on 08/07/2015

Er, what Fran says is what the author says in the first place.  Sounds good to me.

But it wouldn’t surprise me if we might stumble on an unethical buyer at some point, for some reason, wants to hide the truth from his/her agent.  But with proper pre-quals, the truth would come out.  I’ve only been at an office for a couple of months, and I’ve heard a dozen stories of improper and unethical and/or illegal practices by buyers, sellers, and realtors/brokers.

Hal Stark on 08/07/2015

You go Fran.  Your answer is the only reasonable answer to all of this.  I’ve never seen more back and forth on one subject—some with questionable ethics——some reading too much into the subject——some down right wrong.

If I know it I’m disclosing it when it involves a contract.

Jeff Cranston on 08/07/2015

I imagine the only reason a Buyer would want to keep quiet about it is if he/she is so worried that any contingency would scare away a seller when the buyer is really hungry to buy that house.  So they are willing to forfeit their earnest money and take the risk. 

I might understand this in a very high demand area where supply is low and there is allot of competition for houses.

Guy E. Gimenez on 08/07/2015

Buyers and Sellers assess risk vs.  potential reward every day. 

If, as a Buyer, I’m willing to “potentially” lose my earnest money (this assumes I don’t have seven other ways to terminate the contract that would keep me from losing said earnest money), then that is a decision I arrived at based on perceived risk and my tolerance for same.  It is a buyer’s decision, just as it’s a Seller’s decision on whether to accept a contingency in strong market IF a contingency is part of the offer.

Jeff Cranston on 08/07/2015

Well, not sure I agree with you Stuart;

By definition, a contingency, at least one of a few, is “something incidental to something else”.  In the case of a primary home that needs selling may not sell.  Or, it’s a future event, such as the sale of a house, that may not sell in a timely fashion thereby preventing the financing of the new house. 

The TREC addendum is what defines the contingency based on the potential risk and protects the buyer from losing his/her earnest money due to that failure to sell at a predetermined time.  And that could happen due to a second home in front of his fails this contingency and dominoes to the primary deal.  IMHO

Stuart Scholer on 08/07/2015

Excuse the semantics…. but the example:  ....“a coworker of mine had a homeowner arguing with him, “We are cash buyers.”  And he had to explain, “No, you don’t have the cash until you sell and close on your house.  That is a contingency.”  And she was quite stubborn about it. “. .... That…. is an “obstacle” or “condition” that could prevent the Buyer /Homeowner from fulfilling their obligation under the contract.
A “contingency” is something that a contract provides. The Buyer needed the contingency.      Just semantics…. sorry…. I couldn’t help myself.
But to continue this conversation…
  I, as a Buyer’s Agent will do as my Client tells me…. as long as am working for him.
If what the Buyer wants is risky for me, dishonest, or a waste of my time, then I quit.  If my Buyer wants to play Donald Trump and take some risks (and understands those risks) I might consider to continue working for that Client if I believe that I will get paid for my time. Usually, the case is, I will not work for that type of Buyer.  Generally those kind of people have no loyalty and will end up burning even their Agent. There are plenty of Clients out there that just want to do sensible business and move forward. I do have a Buyer right now that is purchasing a new home. His ability to close the new house depends on him selling his existing house first. He has 60 days but no contingency. The Builder is aware of the condition. If he cannot perform on time the Builder will wait another 30 days but it will cost my Buyer another $7K. If the Buyer doesn’t want to do that or cannot perform then the Builder will keep all of his money. My Buyer is in a “hot” market with no inventory, he understands all that he needs to do and he is going for it. I believe he will purchase the new home on time w/o problems. I guess we will see.
I know…. this s not the same as the original question but it is a related example.
                                  That’s all.

Jeff Cranston on 08/07/2015

One thing I have learned, even as a new realtor of a couple of months, is that Buyers can be often times confused about what is Cash and what is a Contingency.  In fact, a coworker of mine had a homeowner arguing with him, “We are cash buyers.”  And he had to explain, “No, you don’t have the cash until you sell and close on your house.  That is a contingency.”  And she was quite stubborn about it. 

Regarding the question, does a Buyer have to disclose to a Seller?  This implies that the Buyer’s agent knows about the contingency and the Buyer is asking, “Can we not disclose that I must sell my home prior to buying the seller’s home?” 

All I read into that is a desire to be deceptive on the Buyer’s part.  To me,  TREC form 10-6 is in order.  It seems bizarre to me why a buyer would wish to potentially hide that fact.  Not to mention, because of the domino effect, there can be multiple contingencies in front of the buyers contingency, and any one of those could fall through, causing the primary one to fail.  If I was a Buyer I certainly would want to protect myself with all of the risks in the deal.

Mike Smith on 08/06/2015

Guy, Thank you for your comments. I am not a licensed attorney, so if a client asks me to interpret the legal meaning or potential legal liability of a word or phrase in a promulgated contract that is a legal question therefore I should refer them to an attorney. When working with another agent I would do the same. Let the legal profession do their job and not put yourself in jeopardy.

Guy E. Gimenez on 08/06/2015

I don’t imagine that was your most brilliant statement ever.  The contract is a legal binding document so OF COURSE you should understand and use the legal language to your advantage. 

Problem with most agents is RDR….REALTORS DON’T READ!

Fran W. Hoover on 08/06/2015

Gosh!  What’s there to argue about?  If you represent the buyer and you know the buyer can’t close without selling his/her current home, what does that say about your integrity, your honesty,  and your ethics? 

If I’m the listing agent, I’m going to layer my questions to you, the buyer’s agent, every way from Sunday until you are either forced to be truthful or just flat out lie. This benefits no one:  Not the buyer who will lose the house; not the seller who has entered into a contract that may or may not close.  Then there are two real estate agents who have spent a lot of time and energy on a transaction that won’t work.

You guys can circumvent what is fair and honest, but this 28-year veteran will not.

Fran W. Hoover / Broker-Associate / Keller Williams Realty, Southlake, Texas

Fran W. Hoover

Cyndia Moore on 08/06/2015

With my listings, I have started requiring that the buyers pre-qual letter from their lender specifically stipulates if the loan either IS or IS NOT contingent upon the sale of another property.  For an agent not to include that addendum is disingenuous, if not downright dishonest.  To lead your buyer client to think it’s ok not to disclose is also doing them a disservice.  It’s all good until it’s not.  Yes, in the real world most may not sue, but if your client is the one that gets sued, they will blame you, and you will be named on the lawsuit, and you won’t enjoy it.  I’ve seen that happen to 2 agents in my 16 years in the business, and it was a very difficult time for them both.  But I always get something in writing from the lender, and ask specific pointed questions on the subject to the buyers agent, which I also get in writing, so I find out one way or the other.

Mike Smith on 08/06/2015

Nancy - Well Said. I sometimes run into know-it-all agents and brokers that try to hide behind the legal meaning of words and think they are an attorney.  I say good luck to them in court while trying to explain the English language to a judge or a sympathetic jury. It is much easier to use common sense and follow the COE, than try to semantically argue your way to the court house. TAR is trying to protect REALTORS from this kind of behavior with their responses to these posts while the COE is another tool for us to go by when in doubt on what to do.  Leave the rest to the attorneys and legal experts.

David Davis on 08/06/2015

Every single person on here is supposed to be a REALTOR® and member of the Texas Association of REALTORS®.  Why is it that so many people want to find ways to disagree with what the Association, that we all belong to, tries to tell us?  If you don’t want to abide by the rules of the Association, why do you belong to it?  The post not only asks the question, it answers the question.  All you have to do it be able to read it.  For those of you disagreeing with the answer, is it that you cannot read?  Do not believe the answer?  Explain yourself….  If the Agent knows about the condition, it must be disclosed.  Not only must it be disclosed, but there is in fact a promulgated form provided to us, to make that disclosure.  Not using the form, when in fact the Agent knows about the condition which would dictate the use of the form, is in, and of itself, practicing law if not an outright violation.

Trish tharp on 08/06/2015

As a listing agent… Representing my seller… I am gonna be all about making sure the financing for the sale of my clients house is in order! That means conversing with the buyers lender, bank or real estate agent if sale of another home is part of the equation..On a continual basis…... My seller and I don’t need surprises near the closing date… Integrity is what enables one to sleep well at night! If I discover near the end…. after my sellers have done everything on THEIR end they were to do as sellers to make the transaction happen ....that the buyers needed to sell their home to do THEIR part… I would feel that integrity had indeed been compromised!!! Brian Cooper nailed it! Code of Ethics holds us to higher standards while selling “temporary homes on Earth” .....

Peter Coleman on 08/06/2015

These disparate opinions certainly make the case for substantial
option and earnest funds.

Thomas Brewer on 08/06/2015

This topic is discussed often these days. So often that we called the TAR legal hotline and have asked this question to the legal folks twice. The attorney take was that the buyer does not need to disclose and that the penalty would be earnest money. The contingency amendment protects the buyer not the seller. The agent is under no obligation under the COE to disclose and will not be under the scrutiny of any license violation. Specific performance would be possible however highly unlikely in the real world courts of law per legal. Take it for what it is worth. Probably better to call the hotline and get the facts than to argue this in this format.

Gregory Knapp on 08/06/2015

Most listing agents act as if they think that all they have to do is get the Seller through the Option Period and they are home free!  There are many pages in a contract; you need to be familiar with ALL of them!

David Davis on 08/06/2015

For those of you saying this is about buyers/sellers, you are only partially correct.  The post said, and I quote:
“My buyer client needs to close on the sale of his current home to afford purchasing a new home. Must he disclose this to the seller? “
Someone please explain how that does not involve an agent.
If the Buyer’s Representative knows about this, they must disclose it.  It comes under honesty in the COE.  It is a material fact of the transaction.  It must be disclosed when known by the agent as implied in the post!
For those of you working the seller side, pick up the phone and call the lender issuing the approval letter, ask questions, do your job!

Patricia Manos on 08/06/2015

I think the easiest way to handle this is if you are the listing agent ask the buyers agent directly if the buyers have a house to sell and/or do they need to close on this in order to buy the listing. If they are getting a loan, have the loan letter state if the loan is contingent upon the buyers selling their current home. If it is a cash offer than ask for proof of funds to close.

Betty Saenz REALTOR® SRES® GRI EcoBroker® on 08/06/2015

I was glad to see this article come out now because in the Austin Texas HOT Real Estate market we are having to ask the buyer’s lender this question since some Buyer’s Reps. have not been readily disclosing this fact. Thank-you for clarification!

Stuart Scholer on 08/05/2015

Looks like Perry Mason and Donald Trump are going at it again.
There is one thing I do know about real estate…. if you live by the sword…. sooner or later you die by the sword.

Guy E. Gimenez on 08/05/2015

I find it very disturbing that an agent would say using the promulgated language to your benefit or to your client’s benefit is considered “twisting” the standard language.  Would love to see how that would play out in a court of law.  Perhaps a review of the role of a fiduciary would be in order here.

James Biedenharn on 08/05/2015

I would agree that the buyer is not required to disclose contingency however if that buyer has an agent the agent must disclose that fact. If the agent doesn’t know purchase would be contingent the agent isn’t worth there salt. 
The only exception I make to this, and tell me if you disagree, is if the contingent sale is closing within the buyers option period. That may be a gray area welcome opinions on that.

Debra on 08/05/2015

I guess I don’t understand why we can’t just do our job and be able to trust that we are telling each other the truth instead of trying to find under handed, sneaky ways to get the upper hand and jerk someone around so you can gain financially at someone else’s misfortune. On judgement day, would you be able to state your story proudly? If not, maybe you should rethink your position.
It’s all fine and good to be a creative agent that does a good job for their client but there shouldn’t be a need to have to look for ways to twist the contractual language if you’ve done due diligence from the beginning!

Brian Cooper on 08/05/2015

OK Guy. I think we differ with the original question. I always tell my agents , if you change the facts slightly, it can change my answer greatly. I think you are saying a buyer does not have an obligation to disclose the sale of another house to the seller. If that is the case, depending on other circumstances, I might kinda sorta agree. If however, a real estate licensee is involved, (Like I think that is what the question says) that licensee would have to make the disclosure because he is aware of it. A smart man once said : “those convinced against their will, are of the same opinion still. If we were sitting across from one another , we would probably be closer to agreement than it appears. Truce

Guy E. Gimenez on 08/05/2015

Hmmmm…OK Brian…I guess I misinterpreted the part of about me being dishonest and getting out of your profession if I didn’t agree with your version of the law.  And funny thing is, my post was never about agents, it was about owners since that is where all this originated (due to the title of the post) and soon morphed into something completely different because a few here either misread or couldn’t comprehend my comments on the fact that an owner has no such obligation to disclose. And I doubt you’ll find a case anywhere that an agent was found guilty of an ethics charge because he/she failed to disregard his buyer’s advice and tell a seller confidential information anyway.

Like you, been heavily involved in contract law and have been mentored extensively by 3 attorney’s over the last 16 years so I’m not new to this either.  And also like you, I teach real world contract practices and creative purchase and sale strategies to investors, many whom are also agents.  As I often say, the courts are full of attorney’s who disagree over the meaning of a sentence, even a word, in a contract and eventually one finds he or she misinterpreted the meaning after they get spanked by the judge.  I believe that is happening here, but as you say, who really cares.  You believe your interpretation is correct and I believe mine is on target and neither of us are likely to change our minds.

Brian Cooper on 08/05/2015

Wasn’t trying to attack anyone personally. I did not read every post on the blog, so I don’t know whom agrees with who and I don’t care. My point is that if you are an agent and you are aware that your client has a house to sell before he can purchase AND CLOSE on another, then you MUST disclose that to the other party. It is not a contract issue, It is part of TREC Rules. If you have case law that says otherwise please post it. As far as my knowledge goes, I have been a real estate instructor for over 25 years and understand real estate law pretty well. ( I teach that, too). I do not need help from anyone in the medical field, am not angry, blind, disjointed, don’t drink, don’t have a dog (can I borrow yours?) and this is MY profession.

Guy E. Gimenez on 08/05/2015

Ouch Brian….have those kind of angry outbursts often?  Call me, I have friends in the medical field who can help. 

I was only pointing out the obvious and never realized so many like yourself would rather remain blind to it.

Fortunately, your definition of dishonesty is not how our courts and our regulations define it.  I just wish angry agents like you had enough knowledge to know that because a buyer (like me) understands the rights afforded him/her in the contract and using those rights doesn’t make them dishonest…it makes them professionals, as painful as that may be for you.  And news flash my disjointed friend…it ain’t YOUR profession…you’re simply another cog in the wheel of THIS profession.

David, please please do buy him a drink….or several.  Seems he’s got some things he needs to get off his chest so he doesn’t go home and kick the dog.

David Davis on 08/05/2015

Can i buy you a drink?
Well stated!

Brian Cooper on 08/05/2015

Are we all reading the same question? “My buyer client needs to close on the sale of his current home to afford purchasing a new home” would indicate the buyer’s agent is aware of his buyers real estate situation. If you don’t like the Code of Ethics, how about Part 23 of the rules of The Texas Real Estate Commission, Chapter 531 Canons of Professional Ethics and Conduct, subsection 531.1 Fidelity. They DEMAND that an agent in performing duties to a client, shall treat others parties to a transaction fairly, and under 531.2 Integrity, a real estate broker or salesperson has a special obligation to exercise integrity in the discharge of the license holder’s responsibilities, including employment of prudence and caution so as to avoid misrepresentation, in any wise, by acts of commission or omission. And I could go on and on , but I won’t. If you just want to be a dishonest person , please pick another profession and get out of mine.

Guy E. Gimenez on 08/05/2015

David:  Thanks for looking into it and proving my point that the reference to fairness was removed from the Article.  I’m sure your recognize that one is never charged with a violation of the Preamble, (it’s merely a mission statement of sorts), you can only be charged with a violation of a Article.

James:  I agree, as stated in my prior posts, that it would be unwise to bet all your marbles on a home selling when no contingency for the same was offered.  However, there are many ways for a buyer to legally terminate a contract and some of those allow for termination up to the closing date.  A seller may not like this, but the fact is that those rights are afforded the buyer in the standard language and a seller can’t penalize a buyer with litigation or requiring forfeiture of E/M simply because we he/she doesn’t like the rights given the buyer contractually.

James Biedenharn on 08/05/2015

The buyer must be willing to risk more than just earnest money. If buyer fails to close due to contingency not closing and has no other “outs” they will be in default. Yes the seller may be satisfied with earnest money but also may elect to seek relief in the courts instead of earnest money.
This is why it pays to have experienced listening agent. I always confirm with buyer lender they do not need to sell a property to close before seller signs a contract.

David Davis on 08/05/2015

From the Preamble:
“The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal.”

And from Article 1:

“When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. “

Guy E. Gimenez on 08/05/2015


I’m afraid you too have not read or are unwilling to comprehend my original comments, so let me try yet again to keep this simple.

1.  Again, I’m NOT talking about agents, I’m talking about buyers because the post title referenced only the buyer.  This is what my original response referenced.

2.  Since we seem to have a hangup on agents in this post, lets follow through with your comments.  Please show me where in the COE there is a duty of “fairness and honesty” to all parties?  The fairness reference was removed years ago so it’s a disservice to others when you continue to post this as a fact…it is certainly anything other than fact.

3.  If, as was stated in a prior response, the buyer says he has cash to buy a house and makes no reference to needing to sell a current house, then I would have no knowledge of anything to the contrary, correct?  I suppose you can come up with desired scenario to pin some responsibility on the buyer agent, but that’s pure speculation based on a desired outcome and not based on any factual data.


David Davis on 08/05/2015

Guy, As for your:
1.  Regardless of who is posting the question, here is the exact title of the post:
    “Does a buyer have to disclose his contingency?”
The answer is NO!  A buyer does not have to disclose it and I challenge you to find any statute or precedent that supports otherwise.

I’m afraid it’s right in the post: “Remember, while your primary duties are to your client, you also owe a duty of fairness and honesty to the seller. If you know when an offer is made that your buyer cannot perform under the terms of a contract and you don’t disclose this to a seller, you may be breaching your duty to the seller, and there’s potential for a claim that you and your buyers have made material misrepresentations or misstatements to the seller or the seller’s agent.”

You might be right in the eyes of the law, but I would challenge you to come up with an example of one Agent that is willing to take that chance.  Winning the battle is pretty insignificant when you lose the war!  Litigation costs are not cheap.

Rebecca Farrell on 08/05/2015

Yes in using the form, it gives notice to all parties in which favors the buyer.  However allows the seller to continue on with a sale of the property with another buyer without default to either party.  In the case of NOT using the form in which is what happened to me, there is none.  The buyer is not protected and the seller has no out when they won’t close.  If a buyers agent knows the sale will not go to close without a sale of other property,  the form should be used but it was not in my case.  Is the buyer’s agent at fault in this situation?  As the buyer probably does not know about the form.

Guy E. Gimenez on 08/05/2015

Nancy,  I read and in fact was able to comprehend the question well, so let me make this simple so you can understand it too and not feel a need to inject points into my comments that simply weren’t included. 

1.  Regardless of who is posting the question, here is the exact title of the post:
    “Does a buyer have to disclose his contingency?”
The answer is NO!  A buyer does not have to disclose it and I challenge you to find any statute or precedent that supports otherwise.

2.  You will note the specific language in the TAR response.  The buyer “should” (not “must”, “shall” or is “legally obligated to”) disclose his need for a contingency. 

3.  If a buyer fails to disclose his need for a contingency and subsequently exercises another contractually allowed termination point, he is not in default and cannot lose his earnest money for failing to disclose his need for a contingency.

Claudio Andrade on 08/05/2015

We have to keep in mind Paragraph “B” of the Addendum for Sale of Other Property by Buyer:
“If Seller accepts a written offer to sell the Property, Seller shall notify Buyer (1) of such acceptance AND (2) that Seller requires Buyer to waive the Contingency. Buyer must waive the Contingency on or before the day _______________after Seller’s notice to Buyer; otherwise the contract will terminate automatically and the earnest money will be refunded to Buyer.”

Rebecca Farrell on 08/05/2015

I recently had a listing in which the cash buyer and his agent did not disclosure a contingency for sale of other property using the addendum.  He willingly gave his earnest money and the seller did not want to take further action.  The buyer’s agent should have been had some consequences towards failing to disclose it to all of the parties involved.

Nancy Henderson on 08/05/2015

Mr. Gimenez did not read the question as written.  The question was posed by a Realtor asking to clarify a point having to do with disclosure of a contingency by a buyer client.  The Realtor is to advise his client to disclose the contingency.  We as Realtors are to follow the Code of Ethics , which some Realtors these days seem to forget.  Advising a buyer client not to disclose a contingency violates the Code of Ethics, regardless if buyer client is aware of the risks of non-disclosure.  Go back and read your Code of Ethics.

Guy E. Gimenez on 08/04/2015

The topic question is “Does the buyer have to disclose his contingency”, not does the agent have to disclose. Obviously, a buyer has no contractual obligation to disclose this contingency as long as he is willing to accept the potential loss of earnest should he not be able to close and should he have no other contractual termination points to use to legally terminate the contract.  Clearly, a buyer has no duty of “fairness and honesty” as it relates to the seller.

Doris Snipp on 07/30/2015

This begs a question of how this would not be listed as a condition on the pre-qual letter?  One should not only inquire if the sale is contingent on the proceeds from the sell of another home but if the seller can qualify for two mortgages. You can then discuss all ramifications concerning the contract and financing.

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