Can I Buy the House I Want Before I’ve Sold the House I Have? Real Estate Terms: Time Clause
Yes, we can do contracts subject to the sale of an other property. I described it briefly in this post about the various kinds of ‘sold’, but will describe it another way here. It’s not a super complicated thing but it is tough to verbalize in a clear way. I’ll do my best to make it readable.
Realtors have a process so Buyers can make an offer on a property without selling the existing existing one that they need to sell in order to afford the one they want. We can add a clause to the usual contract that is specifically for this purpose of creating what we call a ‘time clause’. While a property has an offer with a time clause on it, other people can still make offers on the property and bump those first Buyers out unless they can come up with the money suddenly.
Such a clause contains certain parameters:
- The Buyer is given a certain period of time to sell their existing property (or otherwise come up with the funds) and if they can’t do so within the agreed upon time period, the time period must be extended or the contract is cancelled. Usually a month (maybe two) is what people agree to.
- The Seller can still accept offers from other Buyers. If and when they do, the Buyers with the existing time clause offer are given a short period (usually something like 24-72 hours) to come up with the money to save the deal or they get bumped and the the Buyers who made the new offer get an accepted offer instead.
That’s it in a nutshell but the pros and cons and various ways to play such a thing are what’s really important and probably a convoluted read for most people. I’ll do my best to make the next bit clear and not too long. If it’s not clear and you’re thinking of doing this sort of thing I am pretty easy to just call.
For the Buyer, the catch is that in order to get Sellers to agree to putting their property into a sold/not sold limbo for such a long time, the Buyer will generally have to give the Seller a higher price on the property than they would without the time clause. I am speaking regarding averages of many cases here but anything can happen in one particular case. Regardless, the likelihood of paying a higher price to get that accepted offer should make the Buyer think hard about how special that particular property is to them. It should also be kept in mind that they don’t yet know what their existing property will sell for so they may feel the pinch at both ends financially.
Having an offer with a time clause at a price fairly close to asking is double edged sword though as it bears the sting of (probably) paying a bit more money for the property but at the same time can protect that offer from competing offers from other Buyers who don’t want to pay as much. If properly coached by their Realtor, the Seller will know that having an accepted offer with a time clause in it means that other Buyers are less likely to put offers forward because they are afraid of getting their hopes up before being disappointed. Neither the Seller or anyone else knows for sure if the offer with the time clause will hold together or not so there is a risk for the Seller that the property will just end up sitting on the market for a while losing its appeal to the market at large. All of which is the logic behind the higher price. That said, this doesn’t mean that a Seller won’t accept a lower priced offer and then no one else will try to make an offer on the place. That’s less likely, but it can happen and like I always say “There’s only one way to find out.”
But don’t forget, all of this logic takes a back seat to the same thing that happens in every negotiation. The deal either sinks or swims based upon how badly the Buyer wantsand is able to buy and how badly the Seller wants and is able to sell. The analytically minded tend to want to make everything seem complicated but it’s really just a narrative that lies on top of this fundamental principle of money and motivation.
There are more possible plays here than I am going into but the above gives you an idea of the range of possibilities.