Andrew Wetzel's Musings

November 10, 2017

Anatomy of a Back-Up Offer

Filed under: Buying,Ethics,Multiple Offers,Selling — awetzel @ 6:02 PM

The following post is meant as a “teachable moment” not for bragging or embarrassing anyone.  I am an instructor of ABR (Accredited Buyer Representative) and SRS (Seller Representative Specialist) candidates and this situation demonstrates some of my core philosophies about Real Estate and how to best protect our clients.  Let me start with an overview:

  1. A Real Estate transaction, regardless of whom you represent, is a BUSINESS transaction. Whether you are representing a relative, a friend or someone you just met does NOT matter. You should work equally diligently and honestly for all, keeping in mind that it is business;
  2. In PA we work with a “fill in the blank” agreement of sale. A buyer’s agent needs to explain the entire contract to their buyer-client, ensure that they understand what they are proposing/ offering and explain how to best maximize the buyer’s chance for succeeding in acquiring a seller’s property. A purchase offer must make sense to a seller and both parties are expected to honor the specific terms to which they agree. In PA the contract says that the dates and times are the essence of the agreement and are binding;
  3. the ebb and flow of the agreement allows each side certain opportunities to perform their “due diligence” and to control what happens next. There are times where either party may be allowed to terminate the process without the other side’s approval. Hopefully the end result is a sale that benefits BOTH parties.

None of this is meant to provide legal advice so make no assumptions about a situation you are involved with now or going forward. Here is a general overview of what happened:

  • an agent inquired about a property I was marketing. They asked a few questions which, while appreciated, seemed a little odd. The agent seemed unsure of themself;
  • the agent called me again a day or two later asking the same questions with an addition or two. I suggested that they contact the local municipality to make sure they received the correct answer regarding a zoning/ use question;
  • a couple of days later I called the agent to see if their client had further interest and was told they had written an offer and were preparing to send it to their client;
  • another couple of days passed so I called again and was told that the agent had a signed purchase offer that they would be forwarding to me shortly. The agent specifically said they would call me after they sent it;
  • more time passed without a call or an offer. I wanted to follow up without compromising my seller by appearing over-anxious. Sad to admit but other agents have told me that they were preparing offers for other properties or that they were going to send me something but nothing developed so I am somewhat skeptical until I have something in hand to present to a seller. I called the agent again and was told that they had scanned and emailed me something two days prior as they had said they would. I asked why they had not called me but wanted to avoid any drama that might affect the process (they had no answer). The agent re-sent me the offer which had a day left before expiring;
  • I called my seller-client and verbally presented the offer to see how they wanted to respond. The offer had an unusual contingency that did not concern the seller and they agreed to sign it as-written although they agreed that we needed a clarification regarding what the buyer and agent were looking to accomplish with the contingency;
  • the seller came to my office and signed the contract the next day.  I scanned and emailed it to the buyer’s agent and then called them to make sure they received it. I asked about the contingency. They said their client wanted to survey the boundaries of the property which is fine but the buyer accepted one general contingency while waiving the specific one covering surveying the boundaries which I found curious. Either way, my seller client was unconcerned that the buyer had a 10-day period during which they could terminate the sale for any reason whatsoever;
  • day #5 arrived and passed.  This was the day the initial deposit was due. I called the buyer’s agent on day #6 and was told that they had a personal check despite the fact that the contract required a bank check or wired funds since there was less than 30 days left before settlement;
  • a couple of more days passed with no deposit check. I was advised that the buyer agent had requested wiring instructions and I presumed that that was for the payment of the funds due at settlement;
  • more time passed and, after communicating a few times throughout the day, the buyer agent offered that the buyer would be wiring both deposits, the second one not being due for a couple more days.  My seller client thought that was fine;
  • during the time since the initial deposit was due, I was contacted by an agent who said they had someone interested in buying the property. They asked me if there was anything they could do which stunned me as we had a fully-executed contract. I advised the agent that we would accept a back-up offer in the event that something happened. I asked them to put their client’s offer into writing and suggested a specific date for my seller client to approve it (I offered the day after the offer in-hand was supposed to settle). The agent agreed;
  • day #10 (the last day of the contingency) passed without my hearing anything further about the contingency or the initial deposit. My client and I spoke frequently and we were both losing faith in the original offer and waiting for the “back-up” to arrive. The seller agreed with a strategy I have used before:  I would send an email to the agent stating that the contingency had expired and asking for clarification regarding the status of the initial deposit check;
  • with the seller’s permission I called the second agent and advised them that we were in a situation where their offer would be welcome but that time was of the essence as the seller wanted to sell their property to someone;
  • I had another conversation with the first agent and what they told me essentially provided all my seller needed to know:  the first buyer was adament about doing a survey and would not provide any deposit money until they were certain of the property boundaries for fear of losing it if they decided to terminate the sale. In addition, whether it was due to the fact that almost two weeks had already passed or that something really came up with the buyer’s schedule, the agent told me that they needed to delay the agreed-up on settlement day. What a trifecta:  a late deposit, an expired contingency period and now a need to delay settlement!;
  • I received the back-up offer and called the seller to arrange a meeting. I presented them with the back-up offer and a form to terminate the first sale for failing to meet the terms of the agreement. To their credit, the seller admitted feeling uneasy and questioned the ethics of switching buyers. As I explained to him, the essence of the situation (and the reason for this post) is that the buyer made an offer they were not able or willing to honor and was apparently represented by an agent who, to say the least, was unable to get the sale done as agreed.

Of course no agent can control or dictate what their client does but this agent’s conduct/ performance contributed to our situation. He should have generated an addendum extending the due date for deposit and the contingency to avoid a “default”. Had that been done, delaying settlement would not have posed a problem for the seller. Unfortunately, in addition to whatever the buyer was thinking, the agent never demonstrated the ability to convince us that we were going to complete the sale so the seller made the “business” decision to terminate the first offer and switch to another. Had there been no “back-up” offer, who knows what would have happened.

As I always like to say, HIRE WISELY! In this case, it goes both ways. Perhaps the agent should have declined the opportunity to represent this buyer.

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