What Do You Mean My Binder Isn't Binding?! (2021 Edition)

 

One of the most useful items (in my humble opinion) I have ever posted, and one of the most read, is a blog post I wrote in 2011 about what a real estate binder is and why, despite its name, it is not always binding. I am not going to repeat the article here, but you should read it before continuing, as it will put everything below into context.

For most of 2020 and continuing now in 2021, the real estate market has been especially difficult to navigate as demand is far exceeding supply. It has led to most new listings having multiple bids, accepted offers being discarded by Seller's receiving higher offers after a deal is struck, and Buyer's waiving contingencies like mortgage approval and even inspections to secure a desired house. As someone who has been representing Buyers and Sellers for a long, long, time, it reminds me very much of the last boom time of the early 2000s.

As a result of the craziness, I am also seeing more and more offers being made on full-blown contract (again, read this if you haven't) instead of binder forms. This has significant implications for both Buyers and Sellers. The big ones:

On the buy side:

1.  You may not get standard Seller representations. Seller representations could be a separate blog post, but, basically, it is a series of statements from a Seller as to facts which may not be evident from a building inspection.

2.  You may have limited rights if a title search shows facts you do not like. Again, separate post, but most form contracts require a Seller to give marketable title where most attorney contracts give a Buyer some discretion if there are easements or other restrictions on the property a Buyer is unwilling to live with.

3.  You may be bound under the document you sign if you do not meet time deadlines in the document or give timely notice of any rights to cancel you may have.

On the sell side:

1.  Upon signing, you are bound to the Buyer and obligated to sell your property. Since most of these contracts contain some contingencies for inspections, you are essentially giving the Buyer a free option to purchase the property during the inspection contingency period.

Bottom line, both Buyers and Sellers should be aware of the implications of any documents they sign, prior to signing, which is not always the case given the speed of the market.

If you have any questions, about making or accepting an offer, do not hesitate to contact us at 203-762-0751, or through the contact form at the bottom of the page.

 

2 Comments
Great information! I look forward to more blog posts. I can best serve my clients by being well informed about the legal ramifications of the different form contracts available to us as Realtors. I appreciate this post very much, thanks Doug!
by Kim Clark February 21, 2021 at 12:27 PM
Thanks for the insight Doug. I read both blogs and have two comments. First, in light of the current market conditions that clearly expose a sellers' market, the buyers are often bullied into going direct to contract. Listing agents are demanding that offers be submitted on the Smartmls Standard 4 page contract form. With the frenetic pace of the market and multiple offers, there is not much time for attorney review prior to submission. Even just 24 hours could mean that the property is scooped up by another party. Buyers' agents are often left with just the 5 day attorney review period stated in such contract as the escape clause. Secondly, the mls and state of CT, offer these forms as alternatives. Thus, both encouraging us to take on a legal fiduciary role that many agents do not want. I would like to see the legal community speak up to both the state and the mls on the harm of these standard forms. Everyone is instrumental in the role they perform to a successful transaction. I have enough responsibility being an agent and gladly hand over crafting a formal contract to the attorneys. I would encourage more of my CT realtor colleagues to keep within their wheel house and stop with the demands of offers on contract forms or adding contractual language.
by Nancy Manby February 21, 2021 at 12:06 PM
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