In a residential property market where home purchasers outnumber house sellers, an offer to purchase a property, which is contingent on the sale of another house, is usually not worth much. Sellers in such a "hot" real estate market simply have too many other non-contingent offers to choose from. And sellers know that it is better to accept an offer from purchasers who don't have to sell to be able to buy.
In a slower real estate market, sellers are more likely to accept descent offers to purchase that are contingent on the sale of another property. But even in a seller's market, you might find sellers who are willing to accept a contingent purchase offer, provided that the contract includes an escape for them, in the form of a 72-hour release clause.
The 72-hour release clause gives the sellers a "back door" through which they can exit from the sales contract, should the buyers be unable to sell their current property within a certain period of time. Here's how the 72-hour release clause might function in your property purchase and sale transaction:
You make an offer to purchase the seller's property, subject to the resolutive condition that you sell your current home for a purchase price of more than R750 000 within 3 weeks of acceptance of your offer to purchase this new house. In other words, the offer to purchase the new house is contingent upon the sale of your current home.
The sellers would like to accept your offer, but they need some protection in the contract, so they make a counter offer, which includes a 72-hour release clause. This 72-hour escape clause will come into effect as soon as they inform you about accepting another unconditional offer to purchase the property.
The sellers can now continue to market their property while you are trying your level best to fulfil the "own home" contingency and any other contingency included in the contract for your benefit. This way, the sellers don't lose precious marketing time. But now it is a race between you and the seller, to see who can find a cash buyer first. You are betting on your home to sell soon enough to complete the purchase.
If the sellers receive another offer before your home sells, they are free to accept the offer as a "backup" sales agreement, subject to your contract with the seller "falling through".
Once the sellers find another buyer for their home, the 72-hour clause will come into effect, giving you only 72 hours to find a purchaser for your home, or to remove the contingency and, in effect, declare it fulfilled.
Depending on how the contract of sale is worded, simply removing the contingency may not be good enough to prevent the sales agreement from being cancelled. In most cases, you will also need to prove that you can close the transaction without selling your current property, if its not sold yet. So, if you want the sale to go through, no matter what, don't wait until receiving that dreaded 72-hour notice before making arrangements for the interim financing you would need to make the sale happen.
If you' re not prepared for the worst-case scenario, where your property does not sell in time, you may not be able to pull the financing together in time.
An important drawback of a contingent offer to purchase a property with a 72-hour release clause is that you could go to a lot of effort, which ultimately comes to naught. Yes, negotiating the contract, marketing your home, inspecting the new home, applying for mortgage financing and getting all excited can all boil down to nothing, if you end up "losing" the property to another buyer. This is why you should try to negotiate a timetable that will make it possible for you to fulfil the conditions of the sales agreement BEFORE the 72-hour clause can come into effect. Word the 72-hour clause so that it will afford you a period of about 21 days to fulfil the conditions before the 72-hour clause can start to kick in. If your home is market-ready and reasonably priced, and if the market for your area and property type is active, you could sell within this time frame.
Also remember that ANYTHING goes in a contract of sale. There' s no rule that says a release clause must be have a 72-hour notice period. Depending on how well you negotiate, the notice period can be for any period of time. You might be able to negotiate a longer notice period, or if a delay period before the release clause comes into effect is more important to you, you might exchange a longer delay period for a shorter than 72 hours notice period.
