Can a Seller Accept Another Offer While Contingent?

One significant phase in a real estate transaction is when a property enters “contingent” status. This means an accepted offer is in place, but the sale’s finalization depends on specific conditions being met by either the buyer or the seller. This period protects the interests of both parties.

Understanding Contingent Status

“Contingent” in real estate signifies that a seller has accepted an offer, yet the deal is not fully complete because certain prerequisites, known as contingencies, must be satisfied. These conditions are typically outlined within the purchase agreement and function as safeguards. If these specified conditions are not met, the contract may be terminated without penalty, often allowing the buyer to recover their earnest money deposit.

Common types of contingencies include:
Financing: Allows the buyer a set timeframe to secure a mortgage loan, ensuring they can obtain the necessary funds.
Inspection: Grants the buyer the right to have the home professionally inspected and, based on the findings, negotiate repairs or withdraw from the contract.
Appraisal: Protects the buyer by ensuring the property’s value, as determined by an independent appraisal, meets or exceeds the agreed-upon purchase price.
Sale of Buyer’s Home: Means the purchase is dependent on the buyer successfully selling their current property within a specified period.

Seller Options During Contingency

While a property is under a contingent contract, the seller is generally bound by the terms of that agreement. However, sellers are often not prevented from continuing to market their property or receiving additional offers. This flexibility is typically managed through specific contractual clauses, such as kick-out clauses or by accepting backup offers.

A kick-out clause allows the seller to accept a contingent offer while retaining the ability to pursue other offers. If the seller receives a new offer, this clause typically requires them to provide the initial buyer with a specified notice period, often 24 to 72 hours. During this period, the first buyer must decide whether to remove their contingencies and proceed with the purchase or allow the contract to terminate. If the original buyer does not waive their contingencies, the seller can then move forward with the new offer.

Alternatively, a seller can accept a “backup offer.” A backup offer is a legally binding contract that becomes primary only if the initial, contingent contract falls through. Accepting a backup offer provides a safety net for the seller, ensuring they have a secondary buyer lined up if the first deal collapses. This arrangement can also motivate the initial buyer to fulfill their contingencies more quickly, knowing there is another interested party.

The First Buyer’s Decision

When a seller triggers a kick-out clause, the initial buyer receives formal notice that a new offer has been accepted as a backup. This notice typically comes with a deadline, commonly 24 to 72 hours, within which the first buyer must make a decision.

The primary buyer generally has two main options. They can choose to waive the specific contingency that triggered the clause, such as a home sale contingency or a financing contingency, and proceed with the purchase without that protection. Waiving contingencies strengthens their offer and solidifies their position as the primary buyer. The other option is to decline to waive the contingency, which results in the termination of their existing contract. In most cases, if the contract terminates due to the kick-out clause and the buyer does not waive their contingency, their earnest money deposit is typically returned to them, provided they adhere to the contract’s terms.

Proceeding with a New Offer

After the first buyer makes their decision regarding a kick-out clause, the real estate transaction proceeds based on that choice. If the initial buyer opts to waive their contingencies within the specified timeframe, their original contract remains in effect and progresses toward closing as initially planned.

Should the first buyer choose not to waive their contingencies, or fails to respond within the notice period, their contract terminates. At this point, the backup offer automatically moves into the primary position. The new primary buyer then proceeds with their own set of contingencies, such as conducting a home inspection or securing financing, much like any standard real estate transaction.