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Legal Quiz: Do you know how to handle a Contingent Sale Addendum?

February 2019 Insight Cover ImageBY: Will Martin, General Counsel

1. True or False: A buyer’s existing property is not under contract at the time of entering into a contract with a seller, so the Contingent Sale Addendum is added. If the buyer’s existing property does not go under contract by the end of the due diligence period in the contract with the seller, either the seller or the buyer may terminate the contract.

2. True or False: A buyer’s existing property is not under contract at the time of entering into a contract with a seller, so the Contingent Sale Addendum is added. A second buyer makes an offer to the seller containing better terms than those accepted from the first buyer. The seller may “kick out” the first buyer if they do not waive the contingency within three days.

3. True or False: If a buyer’s property is under contract at the end of the due diligence period, but that buyer’s property doesn’t close by the settlement date in the contract with the seller, the buyer may terminate the contract and get their earnest money deposit (EMD) back so long as they terminate within three days following the settlement date.

4. True or False: If a buyer’s property is under contract at the end of the due diligence period, but that buyer’s property doesn’t close by the settlement date in the contract with the seller, the buyer would have up to 14 days following the settlement date to close on the seller’s property.

5. A buyer’s existing property is under contract as of the effective date in the contract with the seller, but the contract on the buyer’s property falls through. The buyer notifies the seller that the contract on the buyer’s property has fallen through.

(a) True or False: The buyer may terminate the contract with the seller and get a refund of the EMD.

(b) True or False: The seller may terminate the contract and return the buyer’s EMD.

(c) True or False: The seller may terminate the contract and return the buyer’s EMD whether or not the buyer has put their property under contract with a second buyer.

(d) True or False: If the seller elects to terminate the contract, the seller must in any event also return any due diligence fee the buyer may have paid.

HOW DID YOU DO? Scroll down to discover the answer.

STUDY HARD

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Answers

1. False. The contract is null and void. The parties do not have the option to keep the contract in effect. See paragraph 1(a) of the Contingent Sale Addendum, second sentence.

2. False. Although at one time the Contingent Sale Addendum contained such a “kick-out” clause, that clause has not been a part of the Addendum since 2011.

3. True. See paragraph 1(b) of the Addendum.

4. True. See paragraph 13 of the Offer to Purchase and Contract. (Note that if the buyer is unable to close on the buyer’s property within the 14-day permitted delay period, the seller may elect to terminate the contract, in which case the buyer would lose their EMD.)

5.

(a) True. See paragraph 2 of the Contingent Sale Addendum.

(b) True. See paragraph 2 of the Contingent Sale Addendum.

(c) False. Seller’s termination right is “cut off ” by the buyer’s delivery of another contract for the buyer’s property. See paragraph 2 of the Contingent Sale Addendum.

(d) False. The seller is obligated to return any due diligence fee only if the seller terminates the contract during the due diligence period. See paragraph 2 of the Contingent Sale Addendum, last sentence.



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