When is a Contract NOT a Contract?
Is a contract NOT a contract when it is signed by both buyer and seller? Again and again, buyers are walking from short sale offers with no penalty, sometimes encouraged by their selling agents. Here are two emails below from agents in the Destin- Navarre Florida area whose buyers simply backed out of short sale offers after three months of negotiations:
“Yes it is a long time and they do understand the contract but they are not obligated to the contract until the bank responds.”
“It was contingent upon the banks acceptance of the offer and the bank did not accept the offer yet. We did not have a contract only an offer. I do not see the need of a letter or a release of contract since there was no contract.”
My question to these, and other agents, is, if it is not a contract, what is it? Of course, it is a contract. Contracts have contingencies all the time that require action by third-parties. For example, the buyer’s lender must make a decision on the borrower’s ability and the value of the home. The buyer’s home inspector will provide data on the home’s condition. The title agent will determine if there is marketable title. These contingencies do not negate the fact that there is a contract. But any one of these factors can initiate a termination of the “contract”.
What steps can listing agents take to ensure their seller is protected from “escape artist” buyers?
1. Require buyer contingencies to be fulfilled without waiting for lender approval, such as home inspection and mortgage application.
2. Require an earnest money deposit (called escrow in some states) upon acceptance by the seller, not upon lender approval.
3. In return for buyer’s forthright investment in the contract, place the property “under deposit” in the MLS system.
Until selling agents educate their buyers about the gravity of being in a contract when buying a home, we will continue to see short sale contracts fall apart.