Let’s say a buyer submits a full price offer on a property, along with a solid pre-approval letter, and a strong earnest money deposit. The seller declines the offer. Can they do that?
<Insert proper disclaimer that I am not an attorney, this is not legal advice, and you should contact an attorney for counsel regarding your particular agreement and situation.>
Doesn’t a “full price and terms” offer mean a seller is obligated to sell?
Not necessarily. The “terms” acceptable to a seller in a listing agreement typically do not include contingencies. But almost every offer written by a buyer includes some sort of contingency. Common contingencies are inspection and a mortgage contingency, both are almost always in every purchase agreement. Either of these could very well prevent it from being a “full price and terms” offer.
Why don’t more sellers back out? It may cost them a full commission.
The listing agreement is merely an agreement between the seller and the seller’s broker agreeing to pay a commission if the broker brings a “ready, willing, and able buyer,” for price and terms offered by the seller and explicitly stated in the listing agreement, regardless of whether the seller accepts the offer.
Above is a screenshot from a typical listing agreement. Notice it doesn’t say anything about the seller accepting the offer as a condition of the commission being owed? Agents can’t make sellers accept offers and force moves any more than they can force a buyer to write an offer on a house. However…
The listing broker may owe the selling broker the co-operating broker commission offered in the listing.
If another agency brings a qualified buyer based on the price and terms the seller has stipulated in the listing, the listing agent is may be obligated to pay the buyer’s agent the commission offered in the MLS. Which means, the agency representing the seller may have little choice but to seek the commission due them.
The real estate broker’s obligations in order to receive a professional fee [in general] are:
- To bring the seller an offer from a “ready, willing and able” buyer
- For the price and terms the seller has agreed to accept
- And to perform the fiduciary duties outlined in the Exclusive Right to Sell or Listing Agreement between the seller and broker.
The seller may have to pay a commission for the agents having done their job as contracted, but no one can make them accept the offer and move if they’re unwilling.
Specific Performance – This is something else, entirely.
Once a buyer and seller have agreed to price and terms and signed an offer, the seller is now in a legally binding contract with a purchaser. Paying the commission to dissolve the sale isn’t adequate. The sellers have now agreed to all the terms and conditions contained in the buyer’s offer to purchase, regardless of the price and terms initially published in the listing. As long as the buyer does not breach their obligations agreed to in the offer, the seller must perform on the sale.
Backing out of the deal at this point could have either side seeking remedy through the court system under Specific Performance. Thankfully, I do not have any experience with this situation.
The best solution is to make a fully informed decision from the beginning, so there is neither Seller nor Buyer remorse.
In my opinion, buyer or seller remorse is rooted in one of two things:
Fear or Confusion. Both are avoidable.
Ask your agent a lot of questions in the beginning. Do your due diligence in researching all of your options. Work through all of the money numbers with a good lender and address every one of your options. Lastly, work with an agent who thinks about things you don’t. The more questions they ask you, the better they are able to represent you.
As always, when in doubt, talk to an attorney where contract questions are involved and a CPA on financial and tax-related matters.
If you want to talk about your options, we have all kinds of resources to help you in this process.
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