Escape Clause and Conditional Offers

This is an interesting and important question that both buyers and sellers should discuss with their salespersons to fully understand before entering negotiations.

By and large, a conditional offer is one that is contingent upon the buyer and/or seller fulfilling certain terms or performing certain actions, typically within a set period of time. If a conditional offer is accepted, it becomes a conditional agreement of purchase and sale.

If the conditions in the conditional agreement are waived, fulfilled or met, then the conditional agreement becomes a firm and binding agreement. At that point in time, generally speaking, both the buyer and seller are obligated to complete the transaction.

If you would like to accept an offer that is conditional on the buyer selling their existing home, but would still like to consider other offers, there may be options available to you. I recommend that you discuss all of the options available to you, along with the benefits and risks, with your real estate salesperson.

One such option may be the inclusion of an escape clause to help ensure that a buyer behind a conditional offer knows the property will still be marketed to other potential buyers. This strategy provides the original buyer the opportunity to waive or fulfill their conditions and make their agreement firm — or condition-free — before an offer from a new buyer can be accepted.

Typically, an escape clause would require the seller to notify the first buyer, in writing, by way of written notice, that there is a second agreement to sell the property to another buyer, and that they have a set period of time — 48 hours, for example — to waive or fulfill the conditions in their agreement, or to walk away from the purchase.

If the first buyer is unable to sell their home, or is unable or unwilling to waive the condition, then the original agreement becomes null and void. It is best to get this confirmed, in writing, by the first buyer. This provides a record of a mutual agreement that the conditional agreement is null and void, and the first buyer’s deposit can be returned.

Alternatively, if upon receiving their notice, the first buyer waives or removes the conditions outlined in their offer — regardless of the amount the new buyer offers — you are obligated to sell your home to the first buyer under the original terms of the agreement. This is known as the “right of first refusal.”

If you decide to use an escape clause, you should speak with your salesperson and real estate lawyer to make sure that the agreement with the new second buyer contains satisfactory clauses, and that the wording of both agreements is precise. If you are not diligent about including the proper terms and conditions in each agreement, you could end up accidentally selling your home to two buyers at the same time.