If a home buyer makes an offer on a house, is she bound to it? If a home seller accepts an offer, can he change his mind?

A home buyer can withdraw an offer at any time until the offer is accepted by the home seller. After that, the seller may owe a commission to the broker, and may sue the buyer for breach of contract to recover the cost of that commission.

If the seller changes her mind after accepting an offer, especially if the terms of the listing agreement have been met, she usually still owes the broker a commission. This may depend on the wording of the listing agreement, so it might be wise for the seller to state that the commission will be paid upon completion of the sale of the property. Once the offer is accepted, the contract often binds both parties so no one can change their mind without the consent of the other party.

The Binding Effect of Offers and Acceptances: Rules for the Home Buyer

In many circumstances a home buyer makes an offer for a particular home at a certain price where the transaction is slated to close within a certain period of time. Before a buyer makes any offer to purchase real property, she should have a licensed real estate agent and a licensed attorney review the offer as a safeguard.

Both real estate agents and attorneys are required to be licensed to do what they do. By possession of a license to broker real estate transactions or practice law, such individuals have proven their ability to assist individuals who do not possess specialized knowledge with respect to real estate.

When a potential home buyer makes an offer, he or she should place contingencies into effect that must be waived in writing by the home buyer in order for the sale to go through. These contingencies typically consist of a third party professional inspection of the home by a licensed home inspector to ascertain the structural integrity of the home, and a loan contingency to ensure that all financing is in order before close of escrow. If the offer contains such contingencies and the buyer does not waive them in writing, the buyer is not contractually obligated to complete the purchase of the home.

If the buyer submits an offer to purchase a given home, as long as the offer is not accepted by the seller, the buyer can revoke the offer in writing and be freed from obligation under the purchase agreement. If the home buyer makes an offer and the seller responds with different terms than the offer (called a counter offer), there is no contract because the parties have not agreed to the same terms. Until the parties have agreed upon the same terms of the desired purchase and sale in writing, no legal and binding contract exists.

Consequently, before a home buyer makes an offer to purchase a property, the buyer should create express contingencies requiring a written waiver. These contingencies give the buyer the option of not closing the purchase of the property.

The Binding Effect of Offers and Acceptances: Rules for the Home Seller

The law is very different for the home seller who actually accepts an offer by a buyer under the exact terms of the offer. When this happens, the seller and the buyer are now in contract subject to any contingencies required of the buyer (home inspection or loan requirements) in order to close the transaction. In such a situation the buyer has the control over the transfer, assuming there are required written contingencies that the buyer must waive in writing for the sale to close.

In a situation where the buyer of real property enters into a written contract and waives all contingencies but then decides that she does not want to close escrow on the property, the home seller can agree to cancel the contract and not obligate the buyer to close escrow. In some situations, the written contract has a liquidated damages provision, usually not more than three percent of the purchase price, which allows the buyer to walk away from the sale and only be held responsible for the three percent deposit stated in the provision.

Where there is no liquidated damage provision and the home seller refuses to release the buyer from the contract’s obligation, another option exists. In such a situation, the seller may sell the property to a third person, and depending upon the sales price to the third party, may file a lawsuit against the buyer that did not close escrow. This situation only occurs where the sales price is less than the contract price of the buyer who did not close.

When the home seller is in contract with the home buyer and the seller is the one who for some reason does not want to close escrow on the property, the buyer can either agree to voluntarily cancel the contract, or may sue the buyer for specific performance. A specific performance action takes place when the buyer records a lis pendens (Latin for litigation pending) on the desired property to let all other interested people that there is litigation pending over the parcel. The buyer then sues the seller for an order by the court that obligates the seller to sell the property to the buyer at the agreed upon price in the written contract.

The home buyer and home seller should be aware that typical real estate contracts have attorney’s fees clauses in them that award reasonable attorney’s fees to the prevailing home seller or buyer in the event of a lawsuit. Unfortunately these clauses may cause a given lawsuit to continue well beyond the time period normally expected, resulting in large attorney’s fees for both sides.

Case Studies: Understanding the Binding Effect of Offers and Acceptances

Case Study 1: The Change of Heart

Sarah, a home buyer, found her dream house and made an offer to purchase it. The seller accepted her offer, and both parties were in contract. However, a few days later, Sarah had a change of heart and decided she no longer wanted to proceed with the purchase.

Since Sarah had not waived any contingencies in writing, she was able to revoke her offer without any legal consequences. The seller, although disappointed, understood Sarah’s decision and the contract was canceled.

Case Study 2: The Commission Dispute

John, a home seller, received an offer from Jane to purchase his property. John accepted the offer, and they entered into a contract. However, a week later, John received a higher offer from another buyer and decided to back out of the agreement with Jane.

Jane, who had already started making plans for the purchase, was upset and sought legal advice. The outcome of the dispute depended on the terms of the listing agreement and whether Jane had fulfilled all the requirements.

If the listing agreement stipulated that the commission was payable upon completion of the sale, John might still owe a commission to the broker, but Jane could potentially take legal action for breach of contract.

Case Study 3: The Specific Performance Lawsuit

Mark, a home buyer, entered into a written contract with Laura, the seller, to purchase her property. Mark waived all contingencies, and Laura expected the sale to proceed smoothly.

However, just before the closing date, Mark changed his mind and refused to close escrow. Frustrated by Mark’s breach of contract, Laura decided to file a specific performance lawsuit.

She recorded a lis pendens on the property and sued Mark to compel him to fulfill the agreement and sell the property to her at the agreed-upon price. The court would review the case and determine whether specific performance was an appropriate remedy in this situation.