Got your offer accepted? That’s just the beginning.
If you have your finger on the pulse of pop culture news, you’re probably familiar with the recent saga involving Lance Bass, HGTV and the Brady Bunch house. Regardless if you’re #TeamBass or #TeamHGTV, this mini-drama highlights a very frustrating yet all-too-important lesson about the real estate market: Even if your offer gets accepted, the deal can still fall through.
The reality is, the window of time between submitting your offer and entering negotiations is a very precarious one, and when it comes to the process of getting an offer officially accepted, Lenny Kravitz said it best when he said, “It ain’t over til it’s over.” This vague period of time can leave many buyers with more than a few questions.
Not to worry, we’re here to answer some of the most commonly pondered topics buyers have about offer acceptance. If you want to go into your transaction feeling more informed about what’s to come, keep reading!
Question: Can a seller accept a new offer if they’ve already verbally accepted another?
Answer: Unfortunately, that answer is yes. Verbal offers, though often catalysts for the negotiation process, are not considered legally binding (as Lance Bass learned the hard way). For an offer to be considered “under contract”, it must be accepted in writing and signed by both parties.
If the seller receives a better offer before that occurs, they can either counter the first offer with a higher price/better terms or accept the new offer outright. While choosing the later option may seem ethically questionable, the seller is acting within their legal rights by doing so.
So, what’s the lesson here? Get it in writing! Once you’ve found The One™, figure out how much you’re willing to pay for it, put that in writing, and get it to the listing agent as soon as possible. If your offer is accepted, take care not to delay getting the purchase agreement drafted and signed as doing so secures your right to purchase the property.
Question: Once my offer is officially accepted, do contingencies give me the option to back out of the deal?
Answer: Yes and no. In this context, a “contingency” refers to anything inspections, valuations or conditions of the sale that must be satisfied in order for the deal to proceed to completion. If a previously outlined contingency in a buyer’s offer is not satisfied, the buyer has two options: renegotiate with the seller to reach a point of mutual satisfaction (and have the purchase agreement updated accordingly) or withdraw the offer and dissolve the transaction. If the latter occurs, the buyer is free to walk away from the deal unscathed and recoup any deposits given to the seller.
While a contingency can be a great safety net for buyers, in order for them to serve their function, it’s important that the buyer fulfill their obligations including sticking to deadlines and timeframes outlined in the purchase agreement.
In this case, it’s crucial to know that contingencies are there to protect you. Be sure to elect the ones that you need to feel comfortable purchasing the home. In the end, it’s better safe than sorry.
Question: What happens if I waived my contingencies?
Answer: It’s not uncommon for a buyer to remove contingencies to strengthen their offer in a competitive market. After all, an offer free of contingencies is appealing to most sellers. Why? Because it decreases the likelihood that the buyer will back out of the deal. While this practice might not be uncommon, it can be unwise.
Let’s say a buyer removes an appraisal contingency from their offer. Their lender might still require an appraisal of the property. If the appraised value comes back lower than the purchase price, the bank might decrease that buyer’s loan amount leaving the buy to bridge the gap between what the bank is willing to finance and the buyer’s accepted offer. Without an appraisal contingency, that buyer’s options are limited and not ideal.
That said, even if a buyer waives all of their contingencies, they still have the option to withdraw from the purchase agreement. Unfortunately, walking away from the deal in this manner usually results in the buyer forfeiting their earnest money deposit. Although this deposit is meant to be a good faith gesture on behalf of the buyer, it also serves as an insurance policy for the seller. Should a contract be dissolved for any reason other than the failure of the property or seller to satisfy a contingency, the seller can legally retain the EMD as compensation for their time.
Question: Can the seller back out of the deal at all?
Answer: Yes. Although a seller’s options for withdrawing from a purchase agreement are less clearly defined than those of a buyer, they still exist. The first way a seller can back out of a purchase agreement is by including contingencies of their own. While they must be agreed upon by both parties before being included in the contract, a seller can introduce their own set of contingencies. Once included, a seller’s contingencies function similar to those of a buyer. As such, should any of the seller’s contingencies not be satisfied, they can legally dissolve the contract.
Alternatively, a seller can use a buyer’s contingency period to their advantage. In order for the transaction to proceed, both the buyer and the seller must agree that all contingencies have been satisfied. If both parties cannot come to a resolution for a particular contingency, the agreement can be dissolved. In this scenario, the seller can simply refuse to negotiate repairs with the buyer. In both of these instances, the buyer’s EMD is returned to them, and the seller is free to resume marketing their property or accept any possible backup offers.
The last method a seller can employ to back out of an agreement is to simply back out of the agreement. A seller who breaks a purchase agreement isn’t in jeopardy of losing a deposit; however, they could face a much harsher consequence: a lawsuit.
That’s right! If a seller decides to back terminate a purchase agreement without cause, this could lead to legal action being taken by the buyer for breaching of contract. As such, this option should always be a seller’s last resort.
Curious about seller contingencies? Click here to read about some of the most common contingencies sellers place on a home sale.