What do you mean my real estate binder isn't binding?

Binder Signature"How can something called a 'binder' not be binding?" This is one of the most common questions I am asked by my real estate clients. Before answering, a little background and history is necessary.

Real Estate Binder Basics

For those of you unfamiliar with buying or selling a home in Fairfield County, Connecticut, a "binder" is the customary way of making an offer to purchase residential real estate. The purpose of the binder is to set forth the essential terms of a transaction, and for the parties to pledge to move forward on those terms in negotiating a contract.

These terms include:

  • Purchase price
  • Closing date
  • Contingencies
  • A timeframe for inspections

In short, traditionally, a binder was a "memorandum of terms" or "letter of intent;" a moral, if not legal, commitment to try to make a final deal based on the basic terms agreed to by Buyer and Seller. From the execution of the binder, contracts would be prepared, hopefully signed, and, at that point, the parties would be bound to the transaction.

When Binders Were Binding

Every real estate brokerage office uses its own form of binder to submit offers to sellers. About 15 years ago, some offices began including language in their binder forms which declared the binder to be a contract, unless another contract was signed. This language significantly muddied the waters. All of sudden, buyers and sellers were potentially obligated to carry forward with a transaction even though there was no further contract.

For example, if a buyer did inspections and notified the seller of unsatisfactory conditions, but did not specifically terminate the binder (now contract) within the contingency date in the binder, the Seller could refuse to address the inspection concerns and force the buyer to buy, claiming the binder was the contract. This argument applied even if the seller's and buyer's attorneys were negotiating the terms of the "real" contract. Alternatively, a buyer could force a seller to sell even if the seller had an immediate change of heart or received a substantially higher offer prior to inspections being done or a contract signed.

Intent Is the Deciding Factor

Needless to say, the new language created a mess. The result was a sudden increase in the number of parties attempting to enforce as a contract a document that was historically never intended to be a contract. Further complicating matters was the parties' potential obligations varied wildly depending on which office prepared the binder, since some offices did not include any "contractual" language, and, despite the discrepancy in language between offices, most realtors treated binders interchangeably. This led to significant uncertainty for buyers and sellers, as well as much litigation, threatened and actual (what you would expect with lawyers involved!). This—finally, I'm sure most of you are thinking—leads us to our answer: how a binder is not necessarily binding.

The courts have concluded it all comes down to a question of intent. Did the parties intend to be bound by the binder or did they contemplate further negotiations and a subsequent contract to be signed? If the buyer or seller attempting to enforce the binder could prove the other party intended to be legally bound by the binder, the binder could be enforced, and, thus, binding. In spite of this fact, intent is somewhat nebulous and incredibly difficult to prove without evidence of overt acts manifesting the party's intent. This is why, a binder, except in the most extreme cases, is not binding.

THERE IS ONE BIG EXECPTION!!!!

In some areas, particularly as you leave lower Fairfield County, realtors use full-blown contracts of sale to make offers. These contracts are usually distinguishable from the binders described above because they will typically contain around 25 discrete paragraphs filled with legalese and they will contain a five-day attorney review period. If you are asked to sign one of these contracts to make your offer, I STRONGLY SUGGEST, you have an attorney review first. If you sign without an attorney review, I URGE you to have an attorney review IMMEDIATELY before the attorney review period ends and you are bound by the contract.

We Can Take the Guesswork Out of Your Real Estate Transaction

Do you have questions about your binder? Are you working to resolve an issue concerning the purchase or sale of real estate? The legal team at Bayer & Black, P.C. can help you reach a favorable conclusion to your case. We have offices in Wilton and Danbury, and we serve clients throughout Fairfield County. Our real estate lawyers have a reputation for excellent service in a wide range of legal matters. In more than 40 total years of experience, we have received honors such as the 2012 Avvo Clients' Choice Award for General Practice.

We are ready to discuss your case in a free evaluation!. Call us to learn more!