Understanding Open and Closed Predications
When an offer to purchase is made and the purchaser must sell a property to purchase that property the offer is referred to as a predicated offer. The predication may be what is termed an “open†predication or a “closed “ predication. An open predication permits the owner of the property which purchaser is attempting to purchase to continue to offer said property for sale, subject to a first right of refusal.
It functions usually in the following manner. If an acceptable offer is received the owner of the subject property must give the purchaser with the predicated offer, usually 24 , 48 or 72 hours to remove the predication pertaining to the sale of the property and in so doing all financing contingencies are removed. The purchaser would also have the right to execute a rescission of the purchase agreement and thereby receive the refund of his deposit enabling the seller to proceed with the second offer. The open predication usually provides that the property must be sold within 45 to 90 days. A closed predication would work as follows. Purchaser would include a clause in his purchase agreement which would simply state “this agreement to purchase is contingent upon completion of the act of sale of (enter purchaser’s property), on or prior to such and such a date. The closed predication (although not as attractive to a seller) removes the subject property from the market and does not permit the seller of the subject property to continue to offer same. Generally speaking the open predication would be preferred by a seller and the closed predication would be preferred by the purchaser.
In attempting to purchase a property, if the closed predication is unacceptable to the seller, utilize the open predication which will permit the seller to continue offering the property, subject to the first right of refusal. A word of caution-please be certain that you understand the ramifications of removal of the predication, fully, before so doing. (The financing contingencies of the purchase agreement are normally removed, upon removal of the predication)
* The preceding article is subjective and represents the professional opinion of the author / real estate broker, Larry Trunk.
