Legal Hotline: A sign of the times

May 24, 2012

If your calls to the Hotline are any indication, and they are, the market is turning. It’s not all roses and sunshine, but the clouds may be parting, if but ever so slightly.

I say this because I am hearing questions that a year ago would not have been asked. As I say, the world is not yet rosey. We still get callers who relate their angst over buyers who are flexing their new-found muscle or simply walking from deals whereas two years ago, buyers lined up with contingency-less offers at prices above list.

While we may not return to the salad days for a long, long time, we are fielding more and more calls questioning the propriety of taking back-up offers and just how to do so.

Sellers are in a precarious place. Jump on the first offer and avoid months of angst or jump on the first offer and miss that much better one that is just around the corner? It would be difficult for a listing agent in most areas of the state to counsel their seller to wait it out. We know all too well the incredulous tales of reasonably priced properties, even for this market, sitting and sitting and sitting. Our experiences cause us to lean in the direction of seizing the opportunity by accepting that first offer understanding that it may be the only offer in a long, long while.

But what happens when the market starts to turn? Your calls are suggesting an answer. Sellers are taking offers only to find that there were other buyers around the corner prepared to offer more. This was the case for a seller who was recently referred to me. The property was listed at $490,000, but the seller had accepted an offer, upon the advice of his agent, at $420,000. A day later the listing agent was contacted by a buyer willing to pay full price. After some consideration, seller offered buyer #1 to go away for $35,000 cash, half the difference between the two offers.  No deal.  Buyer #1 knew exactly what she wanted.

Competition necessitates sharp focus. For a buyer whose offer is accepted, compliance with performance dates takes on new meaning. Fail to make a timely mortgage application or have a commitment in hand by the deadline? Your contract is likely terminated! This poses additional risk for buyer agents who are not careful about instructing their clients on the necessity of timely performance.

For listing agents, back-up offers are again a tool worth considering. But again, precise and thoughtful action is the imperative. A seller cannot sign two contracts to sell unless one or the other or both include precise language that will preclude the seller from becoming legally obligated to sell the same property twice.

A back-up offer can be contingent upon the termination of the originally accepted offer. But it is not that simple.   Examples abound of sellers who manage to wriggle out of the first offer only to find the second terminated by virtue of some unforeseen complication that should have been addressed in the back-up contingency. The story of the fox and grapes should come to mind.

There is no standard back-up contingency, therefore, the practitioner is at great risk when drafting such a form. You may unwittingly engage in the unauthorized practice of law for simply drafting a contingency that has not taken into consideration all eventualities.

But let’s look to the sunny side. An emerging market may present new (or newly revisited) issues, but it sure beats the alternative.

About James L. Goldsmith, Esq.:
Jim Goldsmith, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline.
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5 Responses to Legal Hotline: A sign of the times

  1. Pat Moyer on May 25, 2012 at 9:08 pm

    How timely! Great resource for consumer conversations. Useful in discussions with buyers who are still “reluctant”–waiting for prices to drop a little more. More people should attend auctions to see what can happen. Thanks as always Jim for being on top of things.

  2. James L Goldsmith on May 25, 2012 at 10:57 am

    Thanks Wags. I’ll have another!

  3. Robert Wags Wagner on May 24, 2012 at 5:15 pm

    This agent possibly did not follow a long standing tactic of calling for the “LAST CALL”. As some of you (NOT I) know that in the wee hours of the night the bar tender gives you one last chance to ante up at the bar, we always contact all past showing agents to let them know there is an offer possible and now more than ever we are seeing this as a motivator for the buyer in the wings to make their play. That way you know you have exhausted all “known” buyers in the market place and should feel a little more secure in advising your seller client on the best course of action given what you know.

  4. Deanna Oessenick on May 24, 2012 at 12:23 pm

    Sounds like it’s time for PAR to write a back-up contingency form, along with a protection for buyer against an escalation clause.

  5. Andrew Wetzel on May 24, 2012 at 10:30 am

    Brilliant as always!

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