The Colorado real estate purchase contract, known as the Contract to Buy and Sell Real Estate, contains 8 buyer contingencies which give them the opportunity to investigate and inspect all aspects of the home and allows buyers to freely terminate the contract if they are not satisfied with the results of their investigation.

Most sellers understand and accept the fact that the contingencies are a part of the home selling process.  However, the Conditional Sale Deadline is the most troublesome and gives sellers the most headaches.

What is a Conditional Sale Deadline (CSD) contingency?  Many buyers need the equity from their current home to make the down payment for their new home purchase but in order to extract the equity, the buyer first needs to sell their current home.  The CSD contingency allows a buyer to present an offer that says, ‘If we (Mr. and Ms. Buyer) can sell our current home, then we will purchase your home Mr. and Ms. Seller.’   When a buyer and seller agree to a contract with a CSD,  the deadline typically falls on or very near the actual closing date. In an ideal world, the buyers are able to sell their current home and now have the equity to go through with the purchase of the home of Mr. and Ms. Seller.  However, if the buyers are not able to sell their current home within the time frame of the purchase contract, then the CSD contingency kicks in and gives the buyers the right to terminate the purchase contract and walk away. This also means the seller won’t know if their home is sold or if the buyer will walk away until moments before the planned closing.

Let’s look at this from a risk perspective.

• Buyer risk is very low:  If they are unable to sell their current home, the buyers can simply terminate the purchase contract using the CSD contingency and receive a full refund of their earnest money deposit.
• Seller risk is very high:
  • The buyer could terminate the Purchase Contract using the CSD contingency:
    • The home goes back on the market and the seller has lost 30-45 days of valuable market time and exposure.
    • Risk of a market or season shift during the lost market time could result in a lower sale price.
  • It is difficult for the sellers to plan their move not knowing if their home is sold or if they will have to put it back on the market.
    • If the seller has already moved out their home:
      • The house will now have to be shown vacant.  Vacant homes take longer to sell and sell for a lower price.
      • Seller may now have two mortgage payments.  One for the home they are trying to sell and a second for their replacement home

When should a seller consider a CSD?  If the buyer’s home is currently under contract, most of the contingencies have been removed by the person purchasing the buyer’s home, and the buyer’s home is scheduled to close within 2-3 weeks of the new home Purchase Contract date, then the likelihood of the buyer’s home being sold is very good and therefore reduces the seller’s risk of a terminated contract due to the CSD.

Looking ahead, my expectation is that we will begin to see more and more CSD contingencies for homes priced above $550,000.  If my crystal ball is right, the market for homes below $550,000 will remain a Seller’s Market, where sellers can be more particular and reject offers containing a CSD.  As the inventory of homes for sale increases and the number of qualified buyers decreases, the market for homes priced above $550,000 may shift from a Seller’s Market towards a more Balanced Market.  Sellers are more willing to consider a CSD as more competing homes are listed for sale in combination with fewer buyers.  It is fair to expect that we will see more CSD contingencies in our market.

With nearly 11 years of real estate experience, my job is to counsel and advise my clients and work to ensure a successful real estate transaction for both buyers and sellers, even when a Conditional Sale Deadline contingency is involved.  If you are considering buying or selling a home any time in the next 18 months, please contact me for a completely free, no-obligation real estate consultation.