Addendum for Sale of
Other Property by Buyer

How to use this form for buyers selling other property
before purchasing the property under contract.

by Ron Walker   The Broker/Lawyer Committee first drafted the Addendum for Sale of Other Property by Buyer nearly 20 years ago. The addendum is used when the buyer needs or wants to sell another property before purchasing the property under the contract. The addendum makes the contract contingent on the buyer receiving the proceeds of the sale of the other property.

Summary of provisions
The addendum provides that if the buyer does not receive the proceeds of the sale of the other property by a specified date, the contract will terminate. It also provides that if the seller accepts a backup offer and so notifies the buyer, the buyer must then waive the contingency, or the contract will automatically terminate. The buyer may waive the contingency only by notifying the seller in writing and depositing any additional earnest money that the addendum requires. If the buyer fails to timely waive the contingency, the contract will terminate automatically. Time is of the essence under the addendum.

Finally, the addendum provides that if the buyer waives the contingency and cannot qualify for a loan because the buyer has not sold the other property, the buyer will be in default. If the buyer fails to qualify for the loan for any other bona fide reason, the buyer will not be in default.

Frequently asked questions

The buyer wants to make the contract contingent on the sale of other property; must the broker use the addendum, or can the broker insert language in special provisions that, arguably, is more beneficial to the buyer?

When a buyer wishes to make a contract contingent on the sale of other property, the broker is required under TREC rules to provide the addendum to the buyer. Brokers are not permitted to disregard the addendum and insert alternative contingency language in special provisions. If a buyer does not want to use the addendum to make the contract contingent on the sale of another property, the buyer should consult with his attorney for the purpose of drafting appropriate language to reflect the buyer’s intent. TREC has disciplined brokers for such violations.

The buyer wants to make the contract contingent on some other event (for example, a transfer or receiving probate proceeds); may the broker modify for the addendum for this purpose?

No. The addendum is drafted for a specific purpose. Modifying the addendum in such a way would, most likely, require the assistance of counsel. A broker who makes such modifications would likely be engaging in the unauthorized practice of law.

Is the addendum the same as a "right of first refusal?"

No. The addendum does not create a right of first refusal. It creates a contingency. A right of first refusal is a right that one holds to buy a property at the same price and terms offered by a third person.

Assume the following facts: (a) the effective date is 1/1/2000; (b) the addendum is attached; (c) the buyer has the right to terminate under the option provision (Paragraph 7D(1)) until 1/20/2000; (d) on 1/6/2000, the seller accepts a backup offer and notifies the buyer; and (e) under the addendum, the buyer must waive the contingency by 1/8/2000. Must the buyer waive the contingency by 1/8/2000, or does the buyer have until the end of the option period to waive?

The time periods under the addendum and the option are independent. The buyer must waive by 1/8/2000 or the contract will automatically terminate.

If the buyer waives the contingency on 1/8/2000, may the buyer still terminate under the option on or before 1/20/2000?

Yes. The buyer has paid for the right to terminate. This right has not been diminished under the addendum. This and the previous question make it clear that the buyer paid for and received a right that is not affected by the addendum.

If the buyer waives on 1/8/2000, is the buyer entitled to receive a return of the earnest money and the option fee?

The buyer is entitled to a return of the earnest money but not the option fee. The buyer’s right under the option was not diminished.

If a buyer waives the contingency under the addendum and then the buyer does not qualify for a loan, does the buyer receive a return of the earnest money?

Not if the reason for the buyer’s failure to qualify for the loan was because the buyer had not sold the other property. The buyer is entitled to a return of the earnest money if the buyer fails to qualify for some other bona fide reason (for example, the property does not appraise and the lender refuses to lend based on the appraisal).

Isn’t the addendum designed strictly for the protection of the buyer?

The brokerage industry first saw the addendum as a means of protecting the buyer, but lately the industry sees the addendum more as a seller’s benefit. By using the addendum, the buyer is not obliged to purchase the property unless the buyer sells the other property. At the same time, the seller benefits because if the seller accepts a backup offer, the seller is not delayed in closing the ultimate sale of the property. Clearly, the addendum is useful to both parties.

May a buyer’s broker suggest that a buyer not use the addendum?

A buyer who can qualify for the specified loan without having to sell the other property need not attach the addendum. The buyer’s broker will want to discuss if the buyer wants to make the contract contingent on the sale of the other property or not. If the buyer must sell the other property in order to qualify for the specified loan, the buyer’s broker should present the addendum for the buyer’s consideration.

May a buyer’s broker suggest that the buyer not attach the addendum if the buyer’s broker knows that the buyer cannot pay the down payment or qualify for the specified loan without selling the other property?

A buyer’s broker’s primary duties are owed to the buyer, but the buyer’s broker owes a duty of fairness and honesty to the seller. It is arguable that if the buyer’s broker knows, at the time an offer is made, that the buyer cannot perform under the terms of a contract and does not disclose such to the seller, the buyer’s broker may breach a duty of fairness and honesty to the seller.

Whether or not the buyer’s broker breaches such a duty is an issue that must be addressed under specific facts of each case. If the buyer’s broker is the person responsible for the suggestion, there is an argument, depending on the specific facts, that the buyer’s broker and buyer may have made material misrepresentations or misstatements to the seller or seller’s agent. There is potential exposure to the buyer’s broker under the facts of this question.

Ron Walker is director of legal affairs for TAR. E-mail him at rwalker@tar.org

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