Can you have a “contingent” offer without a bump clause?

As always, this is not legal advice. For legal advice, consult an attorney, not a blog.

First, my humble apologies to the Rain City Guide community. I have been grossly delinquent in posting to the site! My excuse: I had my very first jury trial on August 9. Thankfully, the jury came back with an excellent verdict in my client’s favor. When the smoke clears, I’ll post about the experience and some of the specific issues raised.

In the meantime, I came across what I believe to be a novel theory about contingent offers. Specifically, I was informed by somebody who should know that use of the Form 22B is “optional.” As background, the Form 22B, “Buyer’s Sale of Home Contingency,” is for use in a contingent offer where the buyer must sell his house before being obligated to complete the purchase of the seller’s house. By its terms, the Form 22B allows the seller to continue marketing the property (in part by noting “contingent” in the MLS). If the buyer receives another, non-contingent offer before the buyer has sold his house, the seller can demand that the buyer either waive the contingency (i.e. commit to completing the purchase even if his own house does not sell) or the contract will be terminated. Obviously, if the contract is terminated, then the seller is free to enter a new, non-contingent contract with the new buyer.

So, the Form 22B really protects the seller. What buyer wants to get “bumped”? Nobody, of course. But what if you represent the Buyer? It’s in your client’s interests to NOT have the bump clause — so can you draft a contingent offer without using the Form 22B? I’m curious to know what others think of the issue.

My thoughts: Absent use of the Form 22B, there is real ambiguity as to whether the contract is “contingent” at all. In the transaction that brought this issue to my attention, the buyer simply checked the second, “if this sale is contingent” box in Para 1 of the Form 22A Financing Addendum. In my mind, this is simply insufficient to render the contract contingent, so if the buyer is unable to complete the purchase there will be a dispute about whether or not the buyer gets the protection of the financing contingency. If, on the other hand, the buyer’s agent drafts a comprehensive Form 34 that addresses the issue, but that does not contain a “bump” clause, then I suspect the agent will have overstepped his authority to engage in the limited practice of law. But those are just my thoughts…

28 thoughts on “Can you have a “contingent” offer without a bump clause?

  1. Craig,

    I did do a contingent purchase many years ago without a bump clause. I was the buyer…and I was not an agent at the time. The agent said it couldn’t be done, but I had a meeting with the seller direct, and he and I worked it out in the contract without agents or attorneys telling us what we could and could not do. πŸ™‚

    It can be done IF the buyer is willing to do whatever it takes to get their home sold, is not contemplating backing out of the purchase, and the seller is not in a big hurry to sell. A lot of ifs…but it clearly can be done.

    As to can an agent draft the Form 34 adequately…yes. In fact I drafted it adequately when I was the buyer and not yet an agent. As long as the language meets the understanding and expectations of both the buyer and the seller, yes, it can be done. As long as the parties are clear as to the rights and responsibilities under the agreement, the language can be fairly easily drafted and successful.

    The key is that the buyer and the seller are the ones who need to agree to the terms BEFORE they become “language” in the contract. Rarely does a buyer and a seller need an agent or an attorney to tell them what they need to do…if they truly have formed a meeting of the minds…and that meeting of the minds is then expressed in the written contract vs in reverse order.

    • Which is a point about when to be an agent, and when to be a buyer.

      Yes, a buyer can do whatever they want, an agent has a specific set of duties. Practicing law is one of those things to avoid.

  2. When I first saw this article, even before I got to the end, my thought was that an attorney should be involved in a contingent offer, because it needs specific clauses.

    In my opinion the contingency should have specific start, and stopping points. It should say what happens, when, specific to the circumstances, the market place, the marketing of the other home, like price reductions.

    Really this is one of those traps that boiler plate just doesn’t address.

    Congratulations on your court case. I think you should do more of that, there is a great need for Real Estate attorneys. Now that you have joined the ranks of a Brokerage, maybe, just maybe, you could bring a perspective to the law.

  3. Ardell, I think David’s point is a good one: What you did as the buyer is fine, as anybody can always represent themselves without limitation. However, if an agent — er, I mean broker — were to draft a “contingency addendum” using a Form 34, I’m pretty confident that the broker would be exceeding her authority to engage in the limited practice of law.

    Also, I certainly agree that things go smoothly when buyer and seller have a full and complete understanding of the terms of the contract before they sign it. However, realistically that’s not possible in most cases. Also, regardless of peoples’ intentions at the inception of the contract, intentions can change. Thus, you simply cannot rely on the parties’ good faith (which you suggest above). Rather, the agreement needs to be reduced to an enforceable obligation — or, alternatively, it remains a voluntary, nonbinding committment. If all parties agree that there is no legally enforceable obligation, that’s fine, but that’s NOT what people rightfully expect when a professional provides them with a contract for their transaction.

  4. Craig said: “Also, I certainly agree that things go smoothly when buyer and seller have a full and complete understanding of the terms of the contract before they sign it. However, realistically that’s not possible in most cases.”

    That’s a pretty sad statement, Craig. Are you saying that most people, buyers and sellers of homes, do not have a complete understanding of the terms they are agreeing to when they sign the contract?

    I do not find that to be the case, and take considerable measures to be certain that is not the case. Of course that usually only applies to “the side” I am “on”. I don’t always have access to “both parties”. However, when going a bit outside of the norm, I do often request a meeting of both parties prior to signing with both agents present, to make sure everyone does understand what they are signing before they sign it. But I spend a lot more time making sure my client “gets” it, than the other agent’s client, except as necessary to protect my client from the liability of the other party’s potential “misunderstanding” of the terms.

    When necessary, there are provisions for the Buyer’s Agent to present directly to the seller, to make sure there are fewer misunderstandings, and a greater degree of assurance that all parties understand what they are signing. I know that option is available to me as an agent…not sure if you can do that as a lawyer.

    The only reason I haven’t done a Modified Contingent Offer for a long time, is because they are more valid as an option during a weak market than a strong one. So many things I am doing now, I have not done since the early 90s. That is a function of the marketplace, not a change in what an agent can or cannot do.

    I did not then, nor would I now, do the entire contingency agreement (sans bump clause) on a Form 34. I would only modify the “bump” language. It’s a pretty simple alteration that should not be beyond the capabilities or permitted duties of most agents.

    As to your insinuation (and David’s) That a buyer can do MORE without an agent than with one…well, that may be generally true somehow in your experience and his experience…but that is well beyond SAD, and clearly not true in the case of me and my clients.

  5. Ardell — you’re right, my comment IS pretty sad. Let me clarify: buyers and sellers in most instances do not have identical understandings of the terms of the contract and their potential consequences. In other words on at least some of the myriad of potential issues, buyers and sellers have not thought out and have not agreed on the exact rights and obligations of the parties. Moreover, attitudes toward the purchase/sale can change after a contract is signed. A written contract sets the obligations of the parites and guides them through issues that arise in the transaction.

    As for your practice of law: Hey, all RCG readers know that many rules don’t apply to you. πŸ˜‰ The fact of the matter is the law allows somebody to represent themselves or to have an attorney do so. A RE broker is allowed by law to only represent somebody to the limited extent of completing pre-printed contractual forms. Legally speaking, if you want to provide comprehensive representation to your clients, including the ability to draft contractual terms unique to your client’s situation, then you need to get a law degree. I know you don’t agree with it, and I’m sure you don’t abide by it as you freely admit, but it is the law.

  6. Craig,

    As I’ve said before…there wouldn’t be a Form 34 if we weren’t supposed to use it. πŸ™‚

    Removing a bump clause is not all that complicated…and not all that hard for buyers and sellers to understand. It is especially handy when the buyer was not even planning to move, but some perfect dream home for them just happens to come on market. Since they are not “looking at homes to buy”, they are less likely to change their minds during the contract period. Often this happens when the buyer lives in the same neighborhood as the seller.

    I think it is absolutely necessary, if you are going to remove a bump clause, for the buyer and seller to meet one another! It is an unusual request, and does not fit every situation. The seller is trusting the buyer to be a motivated seller of their current home. I think the seller’s risk in that situation calls for a face to face meeting with the buyer who is making the request.

    Another point…often the buyer will have to pay a little more for the house when they want the seller to pull it off the market with a contingent contract. It is very difficult to get one of these accepted, if the home has only been on market for a very short time. The buyer should understand that they may not be getting the lowest possible price, and often are not, when they are doing a contingent contract. The peace of mind of knowing where they will go before they put their home on market, does not usually also come with a screaming deal price…unless the house they want to buy is a total “dog”…which is not normally the case.

  7. I’m not sure sad is the right word.

    A buyer, in the scheme of going to court, is the low person on the totem pole. An unrepresented buyer can pretty much do what they want, say what they want, make outlandish statements, and write a Purchase and Sale Agreement on a cocktail napkin that will hold up in court. Actually, by personal experience, I have found that a cocktail napkin can imply that the parties were under the influence of alcohol at the time of signing, so blank paper is better.

    The fact that I know all of that by personal experience may be sad, but the statement that a buyer can do pretty much anything they want isn’t that sad.

    Just to clarify my first assertion, the way the court views the parties involved in a Real Estate transaction is, that the buyer knows the least, the seller is more responsible, because they have the property for sale, the agents are always at fault, and an attorney is the angel there to save the day.

    As far as changing the boiler plate, it’s just not a good idea. I always assume that the buyer and seller don’t understand the contract, go over it page by page, read passages, and stick with the Agreement as written. A Contingency is a misunderstanding waiting to happen, or at best a liability until it’s removed.

    Now what’s not in the contract is the actions of the agents involved.

    If presenting, or receiving a contingent offer, it should be clear what the agent intends to do to market the home, what the Comparative Market Analysis says, and how that CMA compares to mine. The agents are the ones who need to hammer out how to get the Contingent sale done. It should be a collaborative effort, because we do work in the best interest of our clients.

    To me, an agent will either play ball, or it should be a pass on the Contingency.

  8. David,

    I will shortly be closing on a transaction where I represented the buyer on a contingent contract. No problems. Found the buyer for the house they needed to sell in 4 days. It was a new construction purchase, so pretty much a no brainer. The builder always has something else to sell, and usually doesn’t work toward a “bump” on one of the lots.

    Sometimes contingent on the sale of a house makes a lot of sense…sometimes it doesn’t. Sometimes removing the bump clause makes a lot of sense, sometimes it doesn’t.

    It’s up to the agents to make some sense out of it all…

  9. Craig, if you mean the use off 22B is “optional”, as in you don’t have to disclose to the seller that the buyer needs to sell in order to buy, I’m pretty sure that’s not the case. That would be an undisclosed “hidden” contingency, and I’m pretty sure there have been lawsuits in the past on that issue.

  10. “The way the court views the parties
    involved in a Real Estate transaction
    is, that the buyer knows the least,
    the seller is more responsible,
    because they have the property for
    sale, the agents are always at fault,
    and an attorney is the angel there to
    save the day.”
    Yup, and my office is filled with rainbows and butterflies!

    In reality, I have no idea what you are talking about. Courts tend to give some leeway to pro se parties (parties unrepresented by an attorney in court) but that’s about it. The rest of your comment is — should I say IMHO? — off the mark.

    Ardell, yes the “undisclosed contingency” has indeed been the source of lawsuits — such as the one I tried to a jury on August 9.

  11. Craig,

    Disclosure is a two way street. Look forward to the story of your case when it is over.

    I have run into a buyer here and there who didn’t realize they needed to sell in order to buy, because they had their down payment monies in hand. They weren’t relying on the proceeds of sale for the down payment for their next home purchase. I had to point out to them that they didn’t qualify to carry both mortgages simultaneously.

    It’s one of the reasons I don’t like lenders using credit scores. Buyers are less likely to consult with more than one lender, and sometimes any lender, well in advance of buying a home. The lender pulling the credit for the evaluation can result in a 25 point drop in the credit score. Checking with 4 lenders could be a 100 point drop resulting in the buyer not being able to buy a house at all.

    This “hit” to the credit score for checking in with a lender is causing more home buyers to be less informed. Not a good thing.

    Good luck with your case!

  12. Of course my comment, and my perception, is on the mark, IMHO. The only difference a 22A, 22B, or a 34 makes is if you end up in court.

    Once again, a Purchase, and Sale Agreement is an agreement, between two parties outlining the terms, and conditions for the sale, of Real Property.

    If everybody is happy the forms make no difference what so ever. It’s when things become a misunderstanding, and end up in court, when everybody loses.

    Alright, I’m going way out on a limb here to say that Ardell maybe one of those agents who everybody is happy with. It happens a lot in Real Estate. There are some agents who are golden. It makes no difference what they do, every body loves the agent, and would never do anything but defend them.

    You could go into court with a mountain of evidence, and no one would say a bad word about the golden agent. You, on the other hand, as the attorney, may be in the right, and get your head handed to him. Court is a crap shoot, where nobody wins, and every body loses.

    My only point is that yes, a From 34 is in order, and yes we need an attorney to draft it, and yes we need an attorney for the other party to review it. That is currently how the law reads.

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