Legal Consequences of Negotiations

Listen up, now. Before you sign anything, you need to know the consequences. Check out the following scenarios and decide which of them you think are legally binding.

1. A buyer tells a seller he wants to buy his house and will pay his asking price. The seller says, “Fine, we have a deal.” Nothing is in writing.
2. A buyer makes a written offer to buy a house. The seller signs the offer without making any changes. An hour later he realizes he should have changed the closing date.
3. A buyer makes a written offer to buy a house. The seller reads it over and makes a counteroffer.
4. A buyer submits an offer. The seller makes a counteroffer. The buyer signs the counteroffer without making any changes.
5. The buyer and seller are in the tenth round of offers and counteroffers. Right now the seller is reading over the latest counteroffer from the buyer, who has signed and dated it. Is there a deal?
6. The seller makes a counteroffer to the buyer in writing, signs and dates it, and gives the buyer a deadline of 5 p.m. Monday to respond. The buyer responds at 7 p.m. The seller says, “Sorry, I accepted a better offer at 6 p.m.” Did the first buyer have a legal deal?

Answers: Go to the head of the class if you said there were binding deals made in examples two and four. The seller in number two very likely can still amend the contract to change the closing date.

As for number six, the first buyer did not have a final deal, but a dispute could easily arise. If an agent were involved, phone calls likely would be placed to make sure the buyer was really backing out. There may have been a legitimate reason for the delay. Anyone working solo would be advised to check with an attorney before accepting the second offer.

Bottom line: Once both parties have signed a document, it is legally binding.

So is there no way out? Remember the contingencies in the contract? The deal could yet fall apart. Among the possible reasons:

1. There’s a difference between what the bank will loan and what the buyer agreed to pay and she can’t come up with the rest.
2. The buyer is unsatisfied with the inspection report.
3. Seller and buyer can’t agree on who pays for which repairs.
4. The title is clouded by unpaid back taxes, or an ex-spouse is contesting ownership.

There’s almost always a creative way to mitigate a potentially deal-breaking scenario. Experienced agents know what’s worked for others and how to amend the sales contract. But in almost all cases, the seller and buyer have to be willing to return to the dining room table to negotiate a solution.

Real Life: Using the Inspection Loophole

Here’s a story about an attempt to use a loophole. After the inspection of a unique waterfront property uncovered some dry rot, the first-time buyers remained enthusiastic about the home. The sellers agreed to make repairs before the sale closed and immediately hired a contractor.

The buyers started dropping by unannounced, sometimes one of them, sometimes both, while the repair work was underway. One day they would love the property and talk about their planned new color scheme. The next they would sound as if they were suffering from buyer’s remorse. The dithering young couple assured the sellers they were seeking financing. But even the real estate agents were getting exasperated with the couple’s behavior.

The buyers eventually backed out. Their qualms had nothing to do with the property and everything to do with their unresolved personal issues. They said frankly they decided to continue to spend their money on their devil-may-care, “champagne and oysters” lifestyle. Responsibility for a mortgage and maintenance were not their thing. They escaped the deal through the inspection loophole by saying they were unsatisfied with the inspection report.

By now the property had been tied up for weeks. The sellers did not have a backup offer in hand and the market was cooling a bit. Taking a hard look at their options, the sellers decided to pull the property off the market and list it again the next spring.

During late winter, they hired their own inspector to eliminate any surprises that could slow a deal. Anything that might give a buyer pause was repaired. They also installed new carpeting in the master bedroom and hallway and updated paint colors in the bathroom and home office. With the property in gleaming, move-in condition it sold quickly and for a much better price than the previous year’s offer.

Bottom line: For sellers who have time to wait, having a flaky buyer walk away can sometimes mean a better deal.

Next article: Structuring a Seller's Counteroffer

Previous article: Seller Purchase Agreements and Contracts

Related Links

• Inspections During Escrow
• Tips for Seller Negotiations