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Got a Better Offer While Under Contract? For Most Sellers, It’s Tough Luck

At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.

Top-selling Atlanta-area real estate agent Glennda Baker was ecstatic when her listing attracted an offer after only one day of being on the market. “These people had bid over the list price, and their financing was very strong,” Baker recalls. Sounds like a seller’s dream!

The offer came with a tight deadline for the following day, so under pressure, Baker’s seller client decided to go ahead and accept it. However, 24 hours later — and because the universe loves to play little jokes on us — the seller received a “substantially better offer” than the one they signed a day earlier.

This created a major dilemma that you, too, are wondering about: Can a seller accept another offer while under contract? As in, can you tell the first buyer: “Just kidding!” especially if you just accepted the offer recently?

According to real estate attorneys, one of the top reasons sellers want to back out of their real estate contract is because they’ve received a higher offer. It’s pretty common! Unfortunately in the world of real estate contracts, though, it’s typically “no take backs” for the seller, even if a shinier offer comes along.

That’s why it’s critical to know exactly what you’re signing before you sign it. You also need to know your options for accepting backup offers when appropriate, and what happens if you get “lucky” — i.e., the deal falls through with your original buyer for reasons outside your control. We’ll cover it all in this guide (plus you’ll find out what happened to that seller in Atlanta!)

A rope used to represent a binding contract between a seller and a buyer.
Source: (Robert Zunikoff / Unsplash)

The binding nature of real estate contracts

Once a seller signs a purchase agreement, there’s little to no chance of reversing that decision on a whim. The truth is: Purchase contracts favor the buyer heavily with little escape clauses called contingencies. These loopholes essentially allow the buyer to back out of the deal without penalty if something goes wrong with home inspection, the home appraisal, or their own ability to get a mortgage. No similar contingencies come standard on the seller’s side.

Backing out of a signed real estate contract for the seller is decidedly more complicated. If a seller wants to void the contract for any reason, they could face one or more of the following:

  • The buyer can compel the seller to complete the sale.
    If the seller can’t legally back out of the contract, they can be forced to complete the sale, aka “specific performance.” Refuse to sell, and you could be facing a lengthy legal battle.
  • The buyer can sue the seller. 
    When the seller has no legal ground to stand on, the buyer can sue for damages, which can include anything from the cost of losing the home to legal fees.
  • Your agent can sue you. 
    When a seller tries to back out, even their agent has grounds to sue them, since they’re missing out on commission from the sale of the property.
  • The buyer can have a lien put on the seller’s home. 
    A lien is basically legal speak for marking territory. If a seller voids a purchase agreement, the buyer can place a lien on their home, which makes it virtually impossible to sell to other buyers.
  • Both sides will attend mediation. 
    In some states, when the seller tries to exit the contract without solid legal backing, both parties must attend mediation before heading to court. This can eat away valuable time and money, for both buyer and seller.

Bottom line? Unless the buyer backs out, the seller is obligated to go through with the home sale after the agreement is signed and executed.

Special circumstances

A seller could try including an “escape hatch” contingency in their contract that would allow them to back out at any time for any reason, “but finding a buyer that will accept those terms, is very, very unlikely,” Baker emphasizes.

The only proven circumstances that give sellers an out include:

Contingent home sale plus kick-out clause:

In the event the buyer is trying to sell their home simultaneously, it’s not uncommon for the seller to include a provision in the purchase agreement. “Anytime the buyer has a house to sell, we always put a special stipulation that the seller has the right to terminate at any time,” Baker says, expounding on what’s commonly referred to as the kick-out clause.

The buyer misses a deadline:

Purchase contracts include a ton of deadlines for buyers, but if they don’t follow through on the deliverables set for each date, the seller typically has grounds to void the contract. For example, if a buyer misses the agreed-upon 12-day window for an appraisal, the seller could be able to back out.

The buyer and seller can’t reach an agreement post-inspection: 

Let’s say the home inspection report comes back with a list of recommended repairs, as it commonly does. So the buyer asks the seller to offer a credit or complete the fixes prior to closing, but negotiations lead to a gridlock. In that case (so long as the buyer penciled in an inspection contingency) the buyer could choose to walk away and collect their earnest money. At that point, the house would go back on the market and you could accept other offers.

So, at what point is a seller locked into a contract?

It might come as a surprise, but the point of no return begins early in the negotiation process. As soon as you’ve signed a purchase agreement with a buyer, or made a written counteroffer, you’re in the buyer’s hands.

Let’s say you got an offer on your property. As you breathe a sigh of relief and start drawing up a counteroffer, another buyer swoops in with an all cash offer. The second offer might be better, but are you bound to honor the first since you’re already in negotiations?

Like lots of legal situations in real estate, it depends. If you submit a counteroffer to the first buyer in writing and they accept it, you’re likely out of luck and must continue on. If you give the buyer 24 hours to respond, and you hear radio silence after a day, then you are free of those negotiations.

However, if it’s only a verbal counteroffer, it’s probably not binding. You can withdraw your counter offer and pursue the all-cash offer. (Though expect some potential blowback from the buyer and their agent on going against your word).

Some sellers might think the point of no return is signing the purchase agreement, but you start entering unethical territory the moment you start issuing counteroffers. If you’re in a multiple offer scenario or a hot market, you’ll want to work closely with your agent to make sure you’re not unknowingly tying yourself up in an offer.

A calendar used to keep track of backup offers while under contract.
Source: (www Hey Beauti com / Unsplash)

When can a seller accept backup offers?

While you can’t ditch one purchase agreement contract for another, you can accept backup offers, a practice Baker says both agents and sellers often neglect. “I think it’s a missed opportunity for agents,” says Baker. “Sellers are also oftentimes prepared to stop showing their house once it’s under contract.”

But stop showing a house cold when a sale is in its due diligence period, and you could waste valuable days on market. “Anytime the house goes back on the market [after contingency], there’s so many more questions circling a buyer’s mind,” Baker explains.

Lining up a backup offer is a formal process where the seller agrees to an additional offer that will only be accepted in the event the first offer falls through. Having a backup offer will save you from re-marketing the house to brand new buyers if your offer falls through.

“So much can slip between the cup and the lip,” says Baker.

Baker tries to have backup offers whenever she can, but she admits they’re more likely to crop up in a seller’s market where inventory is limited.

Can a seller accept multiple offers off the bat?

In a dream world, a seller could say yes to every offer that crosses their path. However, with only one home to sell, it’s impossible to accept more than one offer on a property. But you will want to make sure in a multiple offer scenario that you’re accepting the best bid.

When entertaining multiple offers, keep these strategies in mind when selecting which to accept:

  • If there’s a standout, take it. If you’re on a tight timeline and one clear offer stands out among the others, don’t hesitate to take it. A strong offer could mean the most money, but it also could translate as a faster closing, fewer contingencies, or the strongest financing. The strategy might work best when you are working on a tight timeline and want a stress-free negotiation.
  • Disclose offers to ignite a bidding war. With your agent’s permission, they can share the details on each competing bid, giving buyers the chance to counteroffer and match or exceed the competition. A bidding war can take time, and can even make finding a backup buyer easier. But the decision isn’t always as easy as picking the highest offer.
  • Ask for best and final offers. If you receive multiple offers, but don’t want to take the time to engage in a bidding war, you can ask buyers to send over their highest, best, and final offers. This strategy can encourage a buyer to put their shiniest offer forward quickly.
A sign representing one offer in a real estate contract.
Source: (Photos by Lanty / Unsplash)

Consider your offers knowing you can only sign one

While your home is on the market, you can ponder as many offers as you like. The moment you start sending out counteroffers, you limit your options. This might tempt you to wait around for better offers to roll in and even question a great offer. Who wants to be tied down?

But remember that at the end of the day — only one buyer can live in your home. It could very well be the case that your first offer is your best.

However, every transaction will be different, and that’s why it’s essential to work with an experienced agent who’s seen it all.

For example, when Baker’s seller got a great offer after they’d already signed with another buyer, they weren’t able to back out immediately. But because the original buyer couldn’t reach an agreement with the seller after the inspection, the buyer walked away voluntarily. From there, the seller was able to accept the second, stronger offer after all without repercussions. In a way, the bad inspection was a stroke of luck for the seller.

Still, keep in mind that once you sign a purchase agreement as a seller, you’ll have a hard time backing out of the sale. It’s better to wait and see whether the buyer will default on some part of the contract, or simply line up your better offer as a backup in the event a sale falls through. For most sellers, backing out isn’t possible without wasting tons of time and money or getting in legal trouble.

Header Image Source: (Joyseulay / Shutterstock)