The Many Ways To Get Out Of A House Sale Escape Clauses(Today’s housing market is definitely reflecting favoritism towards the buyer, with a surplus of homes to choose from and prices falling all over the country. )
A buyer’s market occurs when there is over a 6 month supply of homes for sale on the market, and this is the case in almost all areas of the United States, except for a few select cities who are still seeing positive numbers.
This means that the buyer has a little more leeway in a home sale transaction because the seller will probably be desperate to sell the home in the slow market. And this is where escape clauses come into play, and we will be seeing a lot more of them in the slow market.
An escape clause is something that enables the buyer to get out of the transaction if a certain thing does not happen.
A November 6, 2006 article by Les Christie of CNNMoney.com, “More escape clauses for buyers,” discusses the 72-hour contingency clause and other ways for potential homebuyers to back out of a transaction.
“As housing markets have cooled, buyers are making demands that wouldn't have flown during frothier times. ‘The market has turned in the direction of buyers,’ say Chuck Bartolo, a broker in Spencertown, New York. ‘They're feeling empowered.’”
“In addition to agreeing to make more repairs, to lower their prices and to throw in extras to get deals done, sellers are also more willing to accept contingency clauses in the contracts that make the sale dependent on certain conditions being met.”
One contingency that is very popular is for the house to pass inspection, otherwise the deal falls through.
If the inspection uncovers a lot of problems with the house, then the buyer can ask the seller to fix them. If the seller refuses, then this type of escape clause enables the potential buyer to walk away from the sale without penalty.
Another popular one is to make the sale dependent on obtaining financing for the home. “It's usually best to line up a loan web before making an offer but many people wait until they're ready to buy before they put their financing in place. If they fail to obtain a loan web, they can get their down payment back.”
“‘A year ago,’ says New York City real estate attorney, Neil Garfinkel, ‘you couldn't get any contingencies written into a contract. They are now finding their way back in.’”
The reason why they are coming back in is because people just want to get rid of their home, so they are willing to accommodate the buyer if it means they will take the home off of their hands.
“There's a limit, even in these slower times, to what contingencies most sellers are willing to accept. Most sellers will still not make the sale of their property contingent on the sale of the buyer's home, according to Garfinkel. That's a very onerous clause, tying up the seller's property for weeks and giving no financial benefit if the buyer opts out.”
But there is one escape clause that can benefit both the buyer and the seller, and that is the 72-hour contingency clause.
“Here's how it works. The seller continues to market the house even after a contract is signed. If it attracts another offer, the original buyer has 72 hours to decide whether to go through with the sale - and try to sell the old house afterwards - or drop out, getting the earnest money back.”
“For sellers, the 72-hour contingency means the sale will be more likely to go through speedily, either to the first buyer or to a later one. In effect, the 72-hour clause doesn't remove the property from the market. Buyers gain because they get some protection from the risk of losing earnest money if they can't sell their old house in time.”
So it is a win-win situation for both parties.
It seems as though escape clauses will continue to be popular until the market heat up again, then they will probably fade out, adhering to the momentum of the real estate cycle.
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