legal question - buyer back out from a signed contract?

klose11June 24, 2013

We are the buyer and this is a very hot market in the SF bay area. We already made offers many times and were not accepted. Our agent suggests we could make multiple offers simultaneously to increase our chance. So we follow her suggestion, made multiple offers to some properties we like and suddenly 2 of the sellers accepted our offer in the same day. we are now bound with 2 contracts. We like property A more so we withdraw our contract from property B.

Our contract includes a two-day contingency to review HOA documents (the only contingency we put in our offer) so our agent think we could legally cancel the contract without any penalty. But the selling agent of property B was very upset (obviously our offering price is much higher than other offers) and left a message saying he and his client intend to sue us for breaching the contract.

So my question, is it illegal to make multiple offer simultaneously? since we got a contingency in our contract, is there any standpoint for the seller to sue us?

Any comment would be appreciated!

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Tell us exactly what the contingency says, otherwise, no one here can help much.

    Bookmark   June 24, 2013 at 7:22AM
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I can only speak to what we are currently going through.

Our buyers backed out of their offer 2 days before closing. They claimed it was b/c of the interest rate. We knew that wasn't the reason, as the interest rate change only would have changed their payment $9!!! So, we called their bluff and offered to pay down the interest rate for them. They still walked. The only thing they may lose is their piddly earnest money.

My DH spoke with some real estate attorneys and said no judge will/wants to force someone to buy a house. Yes, we probably could sue them for the time this has taken our house off the market, inspection on the house we were buying (it was contingent on this one selling), etc, but honestly, I'm sick over the deal falling through and really just want to get the failed sale behind us and move onto getting it sold so that, hopefully, we can still save the house we have an offer on.

    Bookmark   June 24, 2013 at 9:20AM
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If you had a contingency, and you retract before your contingency deadline, I am pretty sure you are fine. Here, there is a 3 day window you can walk for any reason (in Washington State); but, then often there are other contingencies built into contracts--inspection being most notable. At any point as long as you are acting within your contract timeline, you are good.

They signed the contract too. They agreed to your contingency to look over HOA documents, and withdraw prior to x date. If you did that, you should be good.

    Bookmark   June 24, 2013 at 1:57PM
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Agree. You had two days to inspect the HOA documents. You didn't like what you saw in there. You informed the seller before the deadline. The contract is void.
How do they even know that you made an offer on another property?

    Bookmark   June 24, 2013 at 2:51PM
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This is exactly why I won't do multiple offers for my buyer clients.

    Bookmark   June 24, 2013 at 3:40PM
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For buyers who wish to submit multiple offers... in the offer, just :forget" to initial one page or something else small like that. That way, if more than one seller signs your offer, it is still not legally a binding contract until the initial is completed.
Our new contracts as of about 2 years ago uses a Due Diligence Period where the buyer can walk for any or no reason for this specified time. The buyer pays a small fee for this period of time. So I can submit several offers at once if I wanted too, w/o the fear that my buyer would be stuck in a contract w/o a way to back out cheaply.

    Bookmark   June 25, 2013 at 7:03AM
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I have to say I find this more deceptive than using the contingency to walk away. Wouldn't want the seller to "forget" to initial something and then renege on a contract, just in case a back-up offer came up.

    Bookmark   June 25, 2013 at 4:33PM
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Did we not learn anything from the RE market crash? No market is so hot that you shouldn't protect yourself with an inspection and financing contingency and if you have no extra cash, make sure you also include an appraisal contingency. There are plenty of people still sitting underwater on plenty of those "hot" properties. I know, I know, your market is different and special ... I'm in LA so we aren't too different, but I know a few that sold at a $1 mill loss and took the hit themselves. Buy now or be priced out forever ... we just saw how that mind set worked out terrible for lots of people. Buyer beware!

    Bookmark   June 25, 2013 at 8:49PM
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"For buyers who wish to submit multiple offers... in the offer, just :forget" to initial one page or something else small like that. "

Not to mention this practice is unethical, deceptive and low. It is hard to believe that the seller's agent and lawyer would be so careless without reviewing the entire offer before asking the seller to sign.

    Bookmark   June 25, 2013 at 10:29PM
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It may or may not be. I do not practice this, as our contracts have the Due Diligence Period that the buyer can back out for no reason.

    Bookmark   June 26, 2013 at 6:55AM
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I have been the victim of tricks like this. we had a buyer sign a contract and then 4 days from closing backed out making false claims (which we could document and refute) saying we had to re wire the entire house to be up to code. although we could have taken them to court we did not feel we could afford to fight it and tie up the house and keep it off the market for the duration. It was unbelievably difficult and it makes me sick to think of it. we had already removed all our staging, furniture and all but my 4 days of personal items that I needed until closing. husband had taken everything up north to the new house already. we lost the prime 30 days the house should have been showing on the market, we had to buy all new items and re stage the house and then had the questions and rumors in the RE community as to why the sale fell through.. In my opinion it is a low and immoral thing to play games with other people's lives by such deceitful practices. if you don't intend to honor the contract, don't sign it! shameful.

    Bookmark   June 26, 2013 at 8:26AM
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egbar - I am right there with you! As mentioned above, our buyers backed out 2 days before closing, for a "fake" reason that we agreed to deal with. What is the purpose of a contract if the buyer can just back out in the end? It was a RD loan, so it tied our house up for TWO months -at the hottest selling time. Argh!

    Bookmark   June 26, 2013 at 8:35AM
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2 days before closing is VERY different from 2 days after signing a contract...

    Bookmark   June 26, 2013 at 11:09AM
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Well, I once backed out of a contract after I saw the HOA documents. Even consulted an accountant who confirmed that the HOA was not in good financial shape. This was a few weeks after signing the contract because the seller took so long to hand over the documents. There may be other issues that a buyer doesn't like in the HOA documents, e.g. a weight limit on pets, an assessment, or whatever.

    Bookmark   June 26, 2013 at 1:36PM
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Why people wants to accept an offer with "Due Diligence Period that the buyer can back out for no reason"?

A contract should spell out exact the issues that may cause cancellation of the contract, such as what kind of findings come out of this "Due Diligence Period". Putting a blank statement like this would keep door wide open, no one should accept this kind of offer.

Again, it is seller's agent, seller's lawyer and seller's responsibilities to come up a water tight ( or as water tight as possible) contract to protect seller's interest, and...seller agent's commission.

    Bookmark   June 26, 2013 at 6:21PM
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The buyer writes out a check to the seller at contract execution, which is a negotiable amount of $. This dollar amount pays for the seller to take the home off the market for a predetermined amount of time, so that the buyer can perform his due diligence. If buyer backs out for any and/or no reason, the buyer keeps the due diligence fee. Same way most commercial deals are written up.
Doing a contract this way eliminates all of the arguments, legal cases and confusion from what systems and items that the seller needed to repair in order to make certain that the items are performing the function which intended for. In the old contract, if these items were not repaired, the buyer could walk and receive the deposit back.
With this new contract, all of this is moot. The buyer does his inspection, requests repairs if he wants, and the seller responds. If buyer does not like the sellers response, he has until the end of his due diligence period to either go on with the sale or back out and get his deposit back.

    Bookmark   June 27, 2013 at 7:02AM
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Thank you for your explanation by adding the additional clause.

It makes the practice much more reasonable than your previous statement "uses a Due Diligence Period where the buyer can walk for any or no reason for this specified time".

    Bookmark   June 27, 2013 at 7:12PM
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It took a while for agents to accept this new contract, but it really does clean up a contract... no more having to write up additional addendums or conditions or contingencies for every little unique situation the buyer may find... now all of that is encompassed via the due diligence period.
The biggest uncertainty when starting to transition to this new contract was that no one knew how to advise sellers on how much to ask for the due diligence fee. Our answer from the Commission was that the market will figure that out... and it has.

    Bookmark   June 28, 2013 at 6:53AM
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I am really surprised to hear that a real estate agent in the bay area (my market) is advising you to make more than one offer at a time on a house. This practice can leave not only you, the client, but also the agent blacklisted. Most selling agents, when coming upon your offer and knowing that you and your agent practice this sort of thing will disclose it to their sellers making your offer not attractive at all. What seller wants to lose money by taking your offer and then having to go back on market (which is basically a black eye to their perfectly good property). Disgraceful. Can a seller back out of deal because they get a better offer leaving you in the lurch? No they can not.

    Bookmark   August 28, 2014 at 8:14PM
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Whether or not it's technically legal doesn't change the fact that your actions were just plain unethical. Whatever the legal outcome, I do hope you do some serious self-reflection.

    Bookmark   August 29, 2014 at 8:08AM
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Shame on your Realtor. Here in VA it is illegal, but practiced. Shame on your Realtor for even hinting to contract B that you did that. Whoever she or he is should have inacted your contingency without divulging any information. The sellers would have been sour, but not threating to sue.

The worst house B can do is cause a goodsized headache and loss of your deposit. However if they choose to go that route, it is more of a headache for them. You can still purchase house A and move on. They will have to keep their property off the market while they fight you in court. They can not sell that house while trying to hold you to a contract. That of course could take months, hell years if you get a good attorney or know anything about law. If it is not illegal there and just an ethical issue, then they are fighting for nothing, because you have a contingency. With those it doesnt matter what the reason is, it is a way out. If it is Illegal, a judge will most likely not hold you to it. If on the off chance they do, you go after the Realtor Proffessional that recommended this strategy. All agents pay Errors and Omissions insurance, sounds like it would be put to good use for this screw up.

In the future I wouldn't trust an agent that is so willing to do unethical things to help you purchase a house. Because that same unethical Realtor could keep information from you, so you will purchase the house. Unethical people don't care who they work for and whos interest they need to keep, as long as the money is in pocket at the end of the transaction.

I know you want to purchase a home and after so many failed contracts, start to get desperate. But never, ever lower your morals, or ethics to get ahead. We teach our children that, so why is it so hard to follow as an adult. Goodluck.

Edited-- had no idea the original post was from June. Could you please give an update with what happened?

This post was edited by bungalowmonkeys on Fri, Aug 29, 14 at 9:16

    Bookmark   August 29, 2014 at 8:27AM
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The earnest money amount in any contract should be more than a buyer would easily walk away from. If a buyer is putting down even 5%, you know they have that much cash available.

In the area where I sold real estate many years ago, it was standard to get $5,000 in earnest money. That was in the 90's and people did not walk away from a contract. It amazes me that where we live now as little as $1,000 is customary.

    Bookmark   August 29, 2014 at 9:48AM
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In my area, 5K is customary on a 200K property.

    Bookmark   August 29, 2014 at 9:55AM
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