Congratulations, you sold your house! The buyers fell in love and made an offer, and you let out a great, big sigh of relief when the contract was signed.
Then it happens—another offer comes in, and a better one at that. What now? Can you take the highest bid? Here’s what home sellers need to know.
When is a sale a sale?
While laws vary by state, in general, up until that contract is signed by both parties—even after counteroffers have been sent out—all new offers can be considered and accepted. Once both parties have signed it, however, the seller is pretty much locked into the deal.
That’s why it’s so important that sellers are confident that they want to accept an offer before signing.
“As a seller, make sure you are willing to accept an offer and know that you may not be able to get out of the deal,” says John Meyers, a real estate agent with Myers and Myers Real Estate in Albuquerque, NM. “It is absolutely critical that, as a seller, you understand the purchase agreement and any counteroffers you sign.
“Read the agreements to find out if you have any outs in the contract,” says Meyers. “Purchase agreements are legally binding agreements, and sellers need to understand their commitments and their ability to get out of the contract.”
Think you can get a higher price for the property? Then you need to make provisions before signing the contract, says Bryan Zuetel, a real estate attorney and broker with Esquire Real Estate in California’s Orange County.
You could, for example, insert terms in the purchase agreement that allow you, as the seller, to continue to accept offers and for the buyer to be allowed the option to match or exceed any higher offers. Buyers can also take backup offers (more on these options later).
“The process is not really over until escrow closes,” Zuetel says.
There are also things that can and do happen between the time a house goes under contract and the closing that may give a seller options. For example, the buyer has specific obligations called contingencies, which include things such as loan approval, home inspection, and a home appraisal. If the buyer fails to meet these contingencies by a designated date, the seller can cancel the agreement and then accept another offer.
Also, various states have different rules regarding contracts. For example, in New Jersey, even after the offer is accepted and the contract is executed, it’s not fully binding until an attorney review period is completed. Attorney review allows both the buyer and the seller to have a lawyer read the contract within three business days (or extended period based on the agreement between both buyer and seller attorneys) after it is signed and to disapprove the contract or to make changes to it.
“As a seller in this case, you can still accept the other or better offer as long as you are still in attorney review,” says Lukasz Kukwa, a real estate agent with Coldwell Banker Residential Brokerage in Westfield, NJ. “Although this will cause some pushback and sometimes isn’t looked at as the most ethical, a seller can legally still accept any other offer up until attorney review conclude as the deal isn’t officially under contract.”
For the most part, though, buyers more commonly back out of contracts rather than sellers. In most cases, the sellers may have to accept the initial offer, even if they receive a better contract.
“Breach of contract could lead to a lawsuit that still results in the sale to the initial contracted buyer, except with the costs of going to court reducing the profit,” says Barry Richards, a real estate agent with EXITRealty Garden Gate Team in White House, TN.
Can home sellers accept backup offers?
The one type of offer a seller is allowed to accept while under contract with a buyer is a backup offer. A backup offer puts that buyer next in line if for any reason the original contract falls through.
A backup offer puts sellers in a good position, and they should communicate to the buyer’s agent that they have one, particularly if the offer is substantially more than the original offer accepted, says Richards. He says it gives a seller leverage to, say, refuse certain requests from buyers, who might ask sellers to pay for repairs after the home inspection, make price adjustments based on the home appraisal, or allow for an extension of the closing date because of lender issues.
Should home buyers bother making a backup offer?
So, if you’re a buyer and you find your dream home but it just so happens to be under contract, should you even bother to look at it? Experts say while you shouldn’t hold your breath, you don’t have to write it off completely.
“It never hurts to have your buyer’s agent inquire about the contract and how it is progressing,” Richards says. “Occasionally, when a contract falls through, a seller will prefer to negotiate with someone who has already done some due diligence on their property rather than going back on the market and dealing with more showings.”
Whether or not to write a formal backup offer is up to the client, but Ryan Gable, CEO of StartingPoint Realty in Chicago, says in most cases they don’t suggest it, as it ties a buyer’s hands and stalls their home search.
“In our market [Chicago], it is generally better to continue the home search than to make a one-sided commitment to a seller who already accepted an offer. But it never hurts to keep following up on a first choice that is under contract. You’ve got nothing to lose, and the time investment can pay off.”
But back to sellers: Yes, having more than one offer on your property is always a good problem to have, but that doesn’t always mean you can take the highest bid.
Sometimes you may have to leave a few dollars on the table, but if you work closely with your real estate agent and carefully consider an offer before accepting it, you can still celebrate the fact that your property sold, and take pride in the fact that you honored the commitment you made when you accepted the original offer.