What is a 72-hour clause?

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Real Estate

Unless you’re well-versed in legalese, you may have a hard time wading through all the technical jargon and industry lingo that are typically included in a real estate contract. One phrase you may have come across in your reading is “72-hour clause.” Perhaps you’ve seen variations of this, such as escape clause, hedge clause, kick-out clause, release clause or right of first refusal clause. Enough with the clauses already, you say. But these clauses may be the only things that stand between you and disaster! Okay, that may be overstating. Let’s start with what a 72-hour clause is not. Some people mistakenly believe that the 72-hour clause is a buyer’s remorse protection, as in you buy a house and you have 72 hours in which to change your mind and give the house back. That’s not what it is. Let us explain. A 72-hour clause works like this: it is put in a contract to give a house seller the opportunity to accept a contingency offer while still marketing the house to other potential buyers. Let’s say that in order to buy a new house, you must sell your current residence first (most people are like that, so don’t feel bad). So you put down an offer on a house contingent on the sale of your current house. Easy enough. But then let’s say another buyer comes along, one who can buy the house outright without waiting for another house to sell. That buyer puts an offer on the house you’ve already put an offer on. Here comes the 72-hour part: now you have exactly 72 hours, or three days, to either sell your house and close on it or come up with a bridge loan or win Powerball to get that house. Another common scenario goes like this: a buyer puts down an offer on a house for $250,000. Three days later, another buyer comes along who finds out the seller has been offered $250,000. This second buyer really loves this house. He offers $300,000 for the house. Is the seller stuck with the lower price? Not if a 72-hour clause has been written into the contract. If the clause is there, the original buyer now has 72 hours to make a better offer than the $300,000 that the second buyer offered. But wait…there’s still more confusing stuff to add to the mix. The 72-hour clause does not have to be a 72-hour clause. In other words, you can specify that the 72-hour clause give the contingent buyer five days or five weeks to fulfill the contingency. Or the 72-hour clause can be 72 hours of working days and not include weekend days or holidays. Who does this clause protect? The seller. If the seller is forced to take the house off the market in the dim hope that your house will sell, they’re closing the door on buyers who potentially could buy the house today—not at some unspecified time in the future. As an added bonus, the buyer, knowing that her dream house is within her grasp but still on the market, has added incentive to stage the house, work on curb appeal and make sure that the marketing is the best it can be. Here’s a sample 72-hour clause courtesy of Bankapedia: The Seller shall have the right to keep marketing the property, and to receive alternative offers to purchase the property. Should the Seller receive a bona fide offer to purchase the property from a third party, at any stage prior to the fulfillment of the suspensive conditions contained herein, which the seller considers more favorable than this offer to purchase, the Seller shall be entitled to accept such offer to purchase. If the Seller accepts an alternative offer, the Seller shall notify the Buyer that the Release Clause has started to function immediately. The Buyer shall then have 24 hours to fulfill all suspensive conditions contained in this offer to purchase. The Buyer has to commit within this time frame, to taking transfer of the property, free from said conditions. Failing compliance within 24 hours, this agreement of sale shall lapse and become null and void, and neither party shall have any claim against the other whatsoever.