Is that legal for the seller of an apartment to accept another offer and send a contract while negotiating a deal
Is that legal for the seller of an apartment to accept another offer while that apartment is under contract?
It is not about being legal or illegal: it is just meaningless. An apartment seller cannot accept another offer if the listing is “in-contract.” A home is “in-contract” after the contract has been signed by the buyer and the seller, and the buyer has paid the down payment. The buyer cannot cancel the contract and sell to a new buyer if the home is “in-contract.” If the contract has not been executed yet, then the buyer can accept another offer. Accepted offers but not “in-contract” yet have no legal value and are meaningless. Only fully completed contracts have legal value.
Can the seller accept another offer while negotiating a contract with a first buyer?
Absolutely. While a contract is being negotiated, the seller is free to accept another offer. We have seen cases where the seller has accepted another offer after the buyer has signed the contract and sent the deposit, provided he has not counter-signed the contract! Either party can do whatever they want until there is a fully executed contract. This behavior sometimes frustrating in a deal since the buyer has already incurred various expenses (due diligence, inspection)
Are accepted offers binding in New York?
No. In New York, just like in many other states, accepted offers are not-binding, and we sometimes see buyers put offers on multiple properties simultaneously. An accepted offer is nothing more than an agreement on terms and price, and no document is being executed at this stage. Only a fully signed contract matters and until that happens, both buyers and sellers can back out, change their mind, or renegotiate the price or terms. At NestApple we have seen sellers deciding not to sell just before signing a contract and after the buyer had performed the due diligence and inspection. Remember an accepted offer is only an agreement on general terms but comes before the buyer’s due diligence and inspection. It’s nothing more than a preliminary handshake based on general terms submitted over email by the buyer’s agent.
When does an accepted offer become legally enforceable?
An accepted offer becomes enforceable once both the buyer and the seller have signed the contract, and the buyer has paid the good faith deposit. Generally, several copies are signed, and both the buyer’s attorney and the seller’s attorney keep a copy of it. The deposit gets usually sent to the seller’s attorney and deposited into its firm escrow account. At this point, the offer becomes legally binding as the home is officially “in-contract.”
Can the seller’s attorney send out multiple contracts to different prospective buyers?
Yes. It is tolerated for the seller to send out multiple contracts to various prospective buyers. Nothing the prospective buyers or seller do is binding until the contract is fully executed. Either party can change their mind, renegotiate, or walk away. Until the listing is “in-contract” The seller can do a deal with someone else even if he had an offer accepted. For the records, this is true in New York, but in some other states such as Connecticut, buyers sign an offer form with more restrictions and more commitments when submitting an offer.
Can a buyer make multiple offers and negotiate contracts on various properties simultaneously?
Yes. Until a contract is fully executed, placing an offer is not binding for the buyer, and accepting an offer is not compulsory for the seller either. In other words, buyers can negotiate multiple contracts on multiple accepted offers, and at the very end of the process, they can choose the property they are willing to buy. Some buyers use it as a strategy to have back up contracts in case a deal is not going through.
Is it ethical for the seller to send out multiple contracts?
It is not ethical, but it is legal. Seller’s broker and seller’s attorney have a fiduciary duty to their client (i.e., to the seller) so will act in the seller’s best interests. In theory, the seller’s broker would give whoever has an accepted offer a few days to go over the contract and do his due diligence. But in practice, listing agents sometimes accept several offers and seller’s attorney send several contracts out. In an ideal world, the listing agent would disclose to all prospective buyers that there are several contracts out. If a deal is being negotiated with a potential buyer, and a new buyer comes in at a higher price, the listing agent should give the first buyer the option to match the price. They do not always do it. In reality, we see brokers sent multiple contracts out, negotiate with various buyers. Sometimes brokers even accept multiple offers without notifying each buyer they are competing with other buyers. This way, they have potential back-ups in case one of the buyers have a change of heart or is trying to re-trade right before signing a contract.
Should the seller disclose to prospective buyers that they are sending out multiple contracts?
Ethically speaking, the listing agent should disclose to prospective buyers that several contracts are being sent out. However, it’s not legally required. We can understand the frustration of buyers since this part of the process takes time and can be costly (due diligence and inspection). It is the right thing to do is to disclose that other contracts are out and that another buyer had a head start and is already working on his due diligence.