A real estate market that’s heating up in various regions of the U.S. doesn’t only mean higher prices: It also means some buyers need to pick up the pace and deal with competition for the houses they want. That competition can lead to “ouch” scenarios like the one faced by clients of Spokane real estate broker Michael Crowley.
While still negotiating the final contract, says Crowley, the buyers “decided to counter on a minor detail, moving the seller’s requested closing date by three days to accommodate a birthday party. That counter kept the offer open just enough for another buyer to show up with a better offer. The buyers were not happy, but I had clearly warned them of the risks.”
Such eleventh-hour switches in seller loyalty can be confusing to buyers. By now, they’ve already been told that the seller likes their offer and wants to work out a deal. Some buyers even believe (mistakenly) that because they got there first, they’ve established some right to the house, such that other wannabe buyers will just have to wait and see what happens.
The reality comes down to a basic matter of real estate contract law. As New York attorney Richard Leshnower explains: “Until you, as the buyer, have your hands on a contract of sale with both the seller’s and your signatures, don’t get overly excited—you’re not yet in contract.”
The concept of being “in contract” is vitally important. It means not only that the escrow process leading to the closing has been launched, but that the buyer and seller are mutually bound to go forward with the deal. (Exceptions are made when the contract terms and contingencies allow an out, as many do, for example if the home inspection turns up defects that the buyer can’t accept.) Once in contract, backing out without an agreed-upon reason comes with consequences, such as a potential lawsuit, or the buyer forfeiting the earnest money deposit.
The steps toward this safety zone of being “in contract” depend on state or local real estate practices. These vary to a surprising degree. In some states, such as New York, the buyer’s starting offer is a short document, and it’s up to the seller to draft a full sales contract for the buyer to review and suggest changes to, until both buyer and seller are ready to sign.
In other states, such as California, the buyer presents an offer that’s in the form of a full contract. All the seller would have to do is sign and return it to the buyer, and they’d be in contract. More often, however, the seller will make some adjustments and return a very similar document as a “counteroffer,” which the buyer can either sign (thus creating a contract) or respond to with another counteroffer, and so on.
No matter where you’re buying a house, however, the procedures and the possibility of counteroffers tend to leave plenty of wiggle room for a seller who sees a better offer come along at the last minute. Leshnower says, “I know of situations where sellers have accepted a better offer that came along while their contract with the first would-be buyer was being mailed to them for signature.”
The bottom line: If you love a house, and are worried that other buyers are circling, do everything in your power to get into contract. Postpone the birthday party, hand-deliver your signed contract to the seller instead of waiting for the mail to get it there, or do whatever it takes. Having an experienced real estate agent at your side, who has established good working relationships with other local agents, can also help here. Michael Crowley says, “There are a few homes in our market that will sell overnight, and I can often call the selling Realtor to see whether other offers are expected and to get some assurances that I’ll be notified if one comes in.” But in the end, notes Leshnower, “A lot depends on the seller’s good faith.”