Should your client use this addendum?

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03/10/2017 | Author: TAR legal staff

If my buyer can’t pay a downpayment or qualify for a specified loan without selling his property first, is it in his best interest to use the Addendum for Sale of Other Property by Buyer?

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 Addendum for Sale of Other Property by Buyer (TAR 1908, TREC 10-6) should be made part of the contract. 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 termination of the contract and the loss of earnest money. Alternatively, the seller could also take action to enforce specific performance or other remedies through the legal system, or both.

Categories: Legal
Tags: legal, legal faq, buyers, forms, contingency


Comments

Tod G Franklin on 03/17/2017

Amen Susan.  The truth is a contract between a seller and a buyer is a handshake in Texas.  It works because buying and selling a home is a win-win situation for both parties. If the buyer wants out of a contract they’re going to get out and the seller is going to put the home back on the market and find a new buyer. 

It has been a sound and proven political strategy to give buyers every opportunity to back out of a contract in Texas. Our process was created by legislators after the collapse of the 80s and is designed for fairness, taking pressure off of escalating housing prices, and keeping lawyers out of the courtroom in the residential marketplace.  Basically it works really, really, well and helped keep Texas out of the collapse of the great recession.

I would imagine statistically the buyer gets their earnest money back 99.9% of the time unless they feel bad for the seller and lets the seller have it.  If the seller wants to fight it they can’t sell their home to anyone else because it is a cloud on the title.

The best seller strategy is get as much information as you can, make the timeframes short, understand the risks, and get to the “yes” or the “no” as quickly as possible. If the deal doesn’t work put it back on the market, give the earnest money back, and Move on.

Susan M Nogues on 03/16/2017

Please amend Paragraph 3 to ‘Buyer’s Advantage’ in my other post…  Obviously, it isn’t a Seller’s Advantage…  grin  Just wanted to make that correction.  Thanks!

Susan M Nogues on 03/16/2017

NOTE TO SELF in a Buyer’s UNDISCLOSED need to sell a property in order to close on a purchase - from the Seller’s Representation Perspective: 
(1) Get proof of funds for down payment from a Buyer.  That’s right….‘show me the money’ for the down payment.  It may flag that a contingency to sell another property was needed, but not disclosed.  It may prompt more questions if the money isn’t there.  (2) Get verification from lender, beyond the normal ‘pre-approval letter’ showing that the Buyer’s purchase was not needed to have proceeds from the sale of another property. (3) Seriously! REDUCE the loan approval days in a 3rd Party Financing Addendum.  If it is more that 2 weeks, the Buyer may be needing to source additional funds via a need to sell another property - undisclosed!  Is this the only strategic remedy the Seller has to vet the financial truth and ability of the Buyer?
#2 is harder to prove than #1.  Because of privacy issues, or whatever the lender disclosure situation. #3 The Seller has more control over requiring a reduced amount of time for the Buyer to get ‘approved’’ in the 3rd Party Financing Addendum.
If you get the ‘pre-approval’ letter from the lender, and it of course, with lump language, it didn’t flag the fact that a contingency to sell another home was needed to satisfy the loan requirements, you’ll never know until it is being terminated by the Buyer on ‘day 14’, etc.  The Buyer would have a contract ‘out’ and get their Earnest Money back on a technicality….a strategically planned technicality.
Being in the business over 20 years and seeing the Buyer strategies to prolong a contract until their Lender Approval Period is nearing an end, it is potentially an unfair advantage to the Seller.  Sellers, to level the playing field of ‘disclosures’, may need a requirement from a Buyer, to give the Seller a real opportunity to see the TRUTH from the ‘other side’.  Not disclosing the need to have to sell another property, by way of a required disclosure, has been used as a ‘strategy’ to get into a contract with a Seller.  Would it not be the same for the Seller ‘not’ telling about a fault line going through a living room, until it ‘came up’’ in an inspection.  Ok, maybe a little bit different… But,  Time is Time in a Contract.  Respect and honesty would be a good target for both sides, right?
There is a natural ‘out’ for a buyer within their ‘approval by lender’ date outlined in B(1) the 3rd Party Financing Addendum. 
If the Buyer has 14 days to terminate for ‘lender approval’ reasons, Buyer can terminate on day 14 for: not being about to satisfy the lender’s requirement to come up with ‘X” down payment or, come up with closing costs, or offset some debt payoff by way of the need to sell another property.  It is legitimate ‘out’.  It is SO EASY for a Buyer to get that disqualifying letter from their lender to satisfy getting out of the contract.  The Buyer would not be in ‘default’ because it became lender requirement for the need to sell a home to complete the loan - on Day 14 or 21, or whatever.
I am just ‘saying’!  Since it ‘came up’.
Who has seen this scenario and it just didn’t smell right?  Maybe it is a time for a change?

Tod G Franklin on 03/16/2017

I am most concerned when this form is not used when it should be. I often see buyers and their agents hiding the sale of another property to improve their offer.  Even if the buyer can qualify for a loan without the sale of the other property, the seller must understand the risk. Who wants to make payments on two homes at the same time? If the other property is on the market, the buyer is less likely to close if that other property does not move. In other words, a contingency can be a contingency whether it is in the contract or not.

Rebekah Snipp on 03/16/2017

One additional detail, we do not provide a copy of the executed contract on the property the buyer is selling (related to the Addendum For Sale Of Other Property By Buyer).  We provide a copy of the MLS print out from the MLS showing the property is pending as proof the property is currently under contract.  The reason we do not provide the executed contract, is in the event the deal were to fall out on the home the buyer was selling, details would be in the hands of another agent and therefore the agent would not have done their fiduciary responsibility to their client because they would have allowed the executed contract of the contingency property to get out.  We have had no issues with providing the pending MLS print out when we explain this fact to the listing agent.

Rebekah Snipp on 03/16/2017

I’ve used this form with my clients when representing them as a buyer agent.  I also have had them come in on my listings.  It’s all in how you communicate with sellers as a listing agent on how it is received.  We have had much success getting transactions closed as buyer agents and listing agents using this form for contingency.  I have processes in place to make sure things are going as planned and notifying agents I am dealing with the in the transactions where contingencies are involved.  I have used the contingency addendum for many years in this business.  Communication is critical for successful closings when using the form.  A reminder, that if the closing date is extended, be sure to extend the date on the contingency addendum, otherwise the contract will terminate and need to be done again.  If that happens, with the lender guidelines put in place over the last few years, and all the dates for disclosures over the last year, that could cause an issue with future closing because the lender would be required to re disclose since a new contract had to be executed due to the previous contract terminating because an amendment wasn’t done to extend the date on the Notice of Sale of Other Property by Buyer for proceeds of sale when an amendment was done to extend closing date on contract buyer was purchasing.

John Stapleton on 03/16/2017

If the situation exists, and TREC promulgated a form for that situation, are we not required to use it?

Sheri Stinson on 03/16/2017

In our area the market is moving very fast, so it is up the seller if he is willing to sell and then go out and purchase another home. Most folks don’t want to make two moves.  Using this form hurts his chances of being successful in a bid but we just have to work harder on terms to convince the seller to take the offer. The further along you are in a transaction (past option) the better your chances.  I just won a bid for my folks and we had the contingency but we sweetened the deal to a degree that the sellers just couldn’t refuse.  I would NEVER leave my clients open to default by not using it when necessary.  If I can get the other side to eliminate the kick out, its just that much better.

David Davis on 03/11/2017

It’s pretty early in this thread, and I realize that every market is a little different, but for the most part, in this market what REALTOR® would take a buyer out to look at property to purchase with such a contingency as this, without knowing that you would definitely have to use this form?

Here’s my point.  If you have been in the business long enough to know that the market is going to necessitate the use of the form (the deal is going to happen that quickly), you ahould also know that the form exists, and that you should be using it, oh and you should also know how to use it.

If on the other hand the buyer’s property is priced incorrectly, or other things that would slow the buyer’s new transaction, and the REALTOR® knows it, the REALTOR® should advise the buyer not to engage pursuit of other properties until a purchaser is seriously engaged on the buyer’s property and all contingencies have been removed on the buyer’s sale.

In most of the current market (pretty seller aggressive) throughout Texas this form is a major turn-off to sellers right now.  If it shows up in a contract package, it is almost a certain decline, or at the very least an un-pleasant counter-offer.

Jan Hutchison on 03/10/2017

We’ve successfully used this form for years.  I can’t imagine any reason for making an offer contingent on the sale of another property without this form.  Additionally, if an agent didn’t suggest this to a client in these circumstances, the agent may have some liability or at least will likely loose a client.


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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

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