Legal Hotline: A sign of the times
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.