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Can a Seller Accept Another Offer While Under Contract?

Posted by hauseit on May 21, 2019
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A seller cannot accept another offer if their listing is in contract, meaning that they already have a fully executed purchase contract in place with a buyer.

Technically, a seller can do whatever they wish because accepted offers are rather meaningless in most states such as New York, where only fully signed contracts hold any sway. However, accepting another offer would be meaningless as they would not be able to cancel the contract and sell to the new buyer.

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Can the Seller Accept Another Offer During Contract Negotiations?

Yes. If a contract is only being negotiated but has not been counter-signed by the seller yet, then a seller is free to accept another offer.

In fact, a seller is free to accept another offer even if the buyer has signed the contract and handed over an earnest money check as long as the seller has not counter-signed and thus fully executed the contract.

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Are Accepted Offers Binding?

No. Accepted offers are generally not binding in most states where only fully executed purchase contracts hold any sway. For example, in New York buyers never sign anything at the offer submission and negotiation stage. Offers are typically submitted by email through buyers’ agents, and an accepted offer is nothing more than a handshake on general terms and price.

An accepted offer really means that because the buyers and sellers have a general agreement of terms, their lawyers can iron out the details and the buyer’s attorney can conduct legal and financial due diligence on the property.

Can listing agents send out multiple contracts? Can a seller accept another offer while under contract? What if a contract isn’t signed yet? Is it ethical?

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When Do Accepted Offers Become Binding?

An accepted offer only becomes binding once both parties have fully signed the purchase contract, and both the buyer’s attorney and the seller’s attorney has received a copy of the fully executed contract and contract riders.

What typically happens is the buyer will sign the contract first and hand his or her lawyer a personal check for the contract deposit. Then the buyer’s attorney will messenger or courier the signed contract plus the good faith deposit to the seller’s attorney. The seller’s attorney will then get the seller to counter-sign the contract, after which the seller’s attorney will deposit the contract deposit into their firm’s escrow account.

A seller cannot accept another offer if their listing is in contract, meaning that they already have a fully executed purchase contract in place with a buyer.

Many buyers’ attorneys will stipulate that the contract is only deemed to be fully executed once they have given written notice of receipt of the fully executed contract. However, for all intents and purposes, a listing is deemed to be “in-contract” and fully binding once the seller has counter-signed.

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Can Sellers Send out Multiple Contracts?

Yes, there’s no prohibition against the seller sending out multiple contracts to different buyers. Remember that nothing is binding for either party until a contract is fully executed, which means either party could walk away or do a deal with someone else at any point before contract execution.

Remember, this is the norm in most states such as New York where accepted offers are rather meaningless and only signed contracts have any binding effect. With that said, be careful in other states like Massachusetts where some Realtor associations will ask buyers to sign their standard offer to purchase form. As with anything in life, anytime you sign something, you begin to put yourself in legal liability. If possible, never sign anything unless you intend for it to be a binding contract!

Pro Tip: Did we answer your question of can a seller accept another offer while under contract? As you can tell, there are many nuances to the question, and many scenarios to consider. If you’re buying, remember that it’s often better to find motivated sellers of listings that are aged or otherwise more negotiable!

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Can Buyers Negotiate Contracts on Multiple Properties?

Yes, buyers are free to negotiate contracts on multiple accepted offers to their satisfaction, and then choose a contract to sign.

This can be a great strategy as it’s pretty unlikely that a seller will not counter-sign a contract, and even if they do, the buyer already has a backup contract or two that is ready to be signed.

If you go down this route, our partner brokers recommend that you only inform the other parties that you are not proceeding with them after you have a fully counter-signed contract from the seller. You never know whether a deal is for real until the seller signs on the dotted line!

Pro Tip: One key difference vs sellers is that buyers cannot sign multiple contracts since they are the first to act. The seller always signs last, and therefore has option value to choose between multiple signed contracts by different buyers. However, it’s highly inadvisable for the buyer to sign multiple contracts, even if their lawyer stipulates that a contract is only deemed to be fully executed once the buyer’s attorney has given written confirmation of receipt of a fully executed contract.

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Is It Ethical to Send out Multiple Contracts?

This is a grey area that doesn’t have a clear answer. While listing brokers have a duty to treat all parties fairly, they also have a duty to act in the seller’s best interests. These duties can be rather conflicting in a situation like this.

In an ideal world, the listing agent of a hot property would give the first buyer with an accepted offer a certain number of days to sign a contract before sending out a second contract to another buyer. At least this way the first buyer will have had a chance to sign it quickly before the deal is taken away from them.

In this ideal world, the listing agent would also disclose to all parties exactly what is going on, and that multiple purchase contracts will be sent out. In this ideal world, the listing agent would also give the first buyer an opportunity to match the price of the new buyer.

But then again, real estate in places like NYC is anything but an ideal world. NYC real estate is often compared to the Wild West of the 19th century, and in practice listing agents will send out multiple contracts and accept multiple offers without bothering to even notify buyers that they have competition. After all, it wouldn’t be in the best interests of their seller if one of the buyers backed out because of the prospect of a competing buyer right?

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Should Sellers Disclose That They Are Sending out Multiple Contracts?

Sellers should disclose to all parties that multiple contracts are being sent out. While this isn’t required, this is definitely a nice move especially because buyers spend time, money and effort during the due diligence period.

Remember that buyers have to engage their lawyer to review and negotiate the contract. Furthermore, the buyer’s attorney must conduct due diligence and review the building’s annual financial statements, original offering plan, board meeting minutes, and condo bylaws or co-op house rules.

Furthermore, a buyer may spend money on a home inspection during the due diligence period, and the buyer’s attorney may order a title search or a coop lien search. If the buyer is really anxious, he or she may pull the trigger and pay up for the bank’s appraisal to get a head start on the mortgage loan process.

As a result, it’s definitely considerate to at least give the original buyer a heads up that multiple contracts will be sent out. Plus, the listing broker should disclose to the new buyer that a contract is already in progress. It’s the right thing to do!

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Disclosure: Hauseit and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).

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