Sale and Settlement Contingencies, Explained
By Kacy Clouser, Esq. | Mar. 10, 2023 | 8 min. read
If your goal is to build some protections into a contract when a potential purchase still has to sell their current property, the good news is that – as we like to say – “we have a form for that!”
But the potential bad news is that we actually have five related forms for that. Not only do you need to know that the form(s) exist, you also need to be able to figure out which of four contingency forms would accomplish the specific goal your client is seeking and then understand how the fifth form fits in with each of them. Since agents may be starting to use these forms again for the first time in several years it seems like a good time for a quick refresher.
The five forms are:
- Settlement of Other Property Contingency Addendum to Agreement of Sale (Form SOP)
- Sale & Settlement of Other Property Contingency Addendum to Agreement of Sale (Form SSP)
- Sale & Settlement of Other Property Contingency (With Right to Continue Marketing) Addendum to Agreement of Sale (Form SSP-CM)
- Sale & Settlement of Other Property Contingency (With Right to Continue Marketing and Timed Kickout Clause) Addendum to Agreement of Sale (Form SSP-TKO)
- Seller’s Reply to Proposed Agreement of Sale for Buyer’s Property or Buyer’s Financial Ability to Proceed (Form SRA)
Since they are all similar we have all five explained in one set of guidelines, which can be found on any of their respective pages on the PAR website. A brief explanation of each is below, after a spoiler alert – you’ll find that none of the forms give a buyer the right to terminate the Agreement of Sale if their current property doesn’t sell – only the seller has a right to terminate.
Form SOP (Settlement of Other Property)
Form SOP is for situations when the buyer is already under contract to sell their current property, but the subject transaction is contingent upon the completed settlement of that property. Form SOP simply lists the buyer’s property address and when that settlement is scheduled, with a requirement to attach a copy of that Agreement of Sale so the seller will be able to assess if they feel comfortable that the transaction is likely to close. If settlement does not occur by the given date, it triggers the seller’s right (but not obligation) to terminate the Agreement of Sale. Upon termination, the deposit would be returned to the buyer.
The Sale & Settlement Forms
Forms SSP, SSPCM and SSPTKO are all for scenarios in which the buyer’s current property is not yet under contract – and may not even be listed yet – that’s why they have “sale and settlement” in the form name. Each addenda functions a bit differently and have varying triggers for who has what right, and when.
Form SSP (Sale & Settlement of Other Property)
Form SSP is generally considered the most buyer-friendly of the forms. Use this form when the seller is agreeing to stop actively marketing their home while the buyer tries to sell their current property. As protection for the seller, however, there’s an opportunity to negotiate how quickly the buyer gets their property on the market and their listed price. For example, a seller would be unlikely to accept this addendum if they buyer says they’ll need a few weeks to get their house ready to list or if they anticipate a list price that seems unreasonably high. It also covers that the buyer will do “what is reasonably necessary to sell and settle buyer’s property”. This includes things like putting the property on the MLS, posting “for sale” signs and cooperating fully with brokers.
Another important part of this form is that the seller has the opportunity to accept or reject the buyer’s agreement for their current property. There is a step-by-step process detailed in the form, but it is important to note that the purpose of the seller’s review is not to pass judgment on the contract or business decisions made by buyer, but to make sure that the terms are reasonable and the buyer appears to be legitimate.
Even if the seller rejects the terms of the buyer’s offer for their current property, the buyer still has an option to show that they have the financial ability to proceed even without the sale. For example, if the could move ahead by taking money out of their retirement account but were hoping not to, now is their chance to show that proof of funds to keep the deal together.
If the buyer’s property is not under agreement (with that agreement accepted by the seller) by the stated date, the seller has the right to terminate, with the deposit returned to the buyer. Again, this is the seller’s right, not the buyer’s right. That right to terminate continues even after the stated date, but ends if and when the buyer’s property goes under contract with terms acceptable to seller.
Form SSP-CM (Sale & Settlement of Other Property with Right to Continue Marketing)
Form SSP-CM is usually seen as the most seller-friendly of the contingencies because it not only allows the seller to continue actively marketing their property (using whatever status is permitted by local MLS rules, which may vary), but it also allows the seller to accept another offer at any time and terminate the current contract with no advance notice to the buyer. This form doesn’t have anything about what the buyer will be doing to sell their property because the seller isn’t locked into waiting for any specific period of time before they could accept another offer and terminate this buyer. This right ends when seller approves an agreement of sale for buyer’s property, and will renew if that agreement is terminated (e.g., if the buyer’s deal falls through the seller can put their property back on the market with this contingency in place).That said, even if they’re unable to find a better offer the Seller’s still has a separate right to terminate if the buyer does not have an agreement by a set date.
Form SSP-TKO (Sale & Settlement with Right to Continue Marketing and Timed Kickout Clause)
Form SSP-TKO kind of splits the difference between the other two sale & settlement forms. A seller still has the right to continue marketing their property (like Form SSPCM), but if the seller wants to accept another offer they have to give this buyer a certain period of time (the “timed kickout”) to prove either that they have their property under contract or that they have the financial ability to proceed – there is no automatic right to terminate if another offer comes along. The content of the form reflects this combined purpose. Five of the first six paragraphs are basically the same as Form SSP – explaining what the buyer will do to sell their current property – then the remainder explains the process that could allow the seller to terminate the Agreement of Sale if they want to accept another offer, including the mechanics of the kickout clause.
Form SRA (Seller’s Reply to Proposed of Agreement of Sale)
The last form of the series is designed to allow sellers to provide written acceptance or rejection of the buyer’s agreement of sale for their own property and/or the buyer’s financial ability to proceed. If the seller wants to reject the buyer’s offer for their current property there’s a spot to explain their reasoning since the forms allow the buyer an opportunity to rework that offer to address a seller’s objections. The form also has an section where the seller could accept/reject a buyer’s additional financial information showing that they have the ability to proceed without selling the current property. That information would be provided in some other format (perhaps Form BFI), but would be accepted/rejected here.
The sale and settlement contingency forms can be a great resource, but it is critical that all members understand how the forms function in order to explain to clients and have them make an educated decision on how to proceed. Each transaction functions differently and these forms are a great example of the range of possibilities when it comes to what a contract may look like. This chart can be a quick shorthand for some of the main differences, but be sure to read the full guidelines so you can understand the full set of similarities and differences.
|Form SSP||Form SSP-CM||Form SSP-TKO|
|Right to continue marketing||No||Yes||Yes|
|Buyer's property listing criteria are spelled out||Yes||No||Yes|
|Seller can terminate if buyer's current property is not under contract by a certain date||Yes||Yes||Yes|
|Seller can terminate upon receiving another offer||No||Yes||Only after timed kickout clause|
|Buyer can terminate if things aren't going their way||No||No||No|
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