Seller accepted your offer? Hooray! So, what happens now? The time between offer acceptance and entering escrow is a very precarious one that can leave buyers wondering what’s to come. Not to worry, we’ll walk you through what can happen after a seller accepts your offer.
Scenario 1: You sign the purchase agreement.
This is, perhaps, the most desired next step in the process for most buyers. For the purchase of property, an offer is considered “under contract” when it has been accepted in writing and signed by both parties. This written contract is called a purchase agreement.
A purchase agreement outlines the following information:
- Identification of participating parties (buyer and seller)
- Legal description of the property
- Financial details
- Purchase price
- Buyer financing
- Earnest money deposit amount
- Closing costs (and how those will be split between the buyer and seller)
- Conditions/specifics of the sale
- Items conveyed in the sale (appliances, fixtures, etc.)
- Contingency time frames
- Offer expiration date
- Closing date
Additionally, details regarding the condition of the home, property disclosures as well as any relevant seller concessions, repairs or credits will be outlined in the purchase agreement. Once the purchase agreement is signed and the earnest money is deposited, the buyer has the legal right to purchase the property should all agreed upon conditions be satisfied. The signing and returning of the purchase agreement along with the buyer’s earnest money deposit is often referred to as moving the sale into escrow.
Scenario 2: The seller wants to negotiate.
A seller might be intrigued by your offer overall, but still want to negotiate some of the finer points of your terms to their advantage. The seller can do so by submitting a counteroffer. The good news is that if a seller is countering, they’re interested in your offer. The bad news is that they might ask for changes you’re unable or unwilling to accommodate. Your buying agent will be a great resource to help you navigate the negotiation.
Key points of negotiation typically align with various purchase agreement line items and can include:
- Increasing the purchase price or down payment
- Removing/editing contingencies
- Adjusting length of closing schedule
- Modifying seller concessions/contingencies
- Seller repairs or credits
- Excluding certain items from the sale
- Property transfer deadline (seller move out date)
After you’ve both come to an agreement on any or all of these points, you’ll want to get a purchase agreement drafted and signed to secure your right to purchase the property.
Scenario 3: You want to back out of the deal.
If you’ve already signed a purchase agreement, withdrawing your offer may not be that straightforward. What determines the ease with which you can take back your offer?
Contingencies, contingencies, contingencies.
If a previously outlined contingency in your offer is not satisfied, you typically have two options: renegotiate with the seller to reach a point of mutual satisfaction or withdraw the offer and dissolve the contract. If the former occurs, it’s essential that you have the purchase agreement updated accordingly. If the latter occurs, you are generally free to walk away from the deal and, depending on your agreement, recoup your earnest deposit.
While a contingency can be a great safety net for buyers, it’s important that you fulfill your obligations as a buyer, or you may risk losing your earnest money deposit or be obligated to buy the property. Your obligations include adhering to deadlines and timeframes outlined in the purchase agreement.
It’s not uncommon for a buyer to remove contingencies to strengthen their offer in a competitive market. After all, an offer free of buyer conditions is appealing to many sellers. That said, even if you waived any or all of your contingencies, you may still have the option to withdraw from the purchase agreement prior to closing. Unfortunately, exercising this option will cost you – literally.
Dissolving a purchase agreement with no contingencies typically means the seller has the right to retain your earnest money deposit. Generally, an earnest money deposit is meant as a good faith gesture and is submitted with a signed purchase agreement to lock in your offer. However, it also serves as an insurance policy for the seller.
Should your contract be dissolved for any reason other than the failure of the property or seller to satisfy a contingency, the seller usually can retain your earnest money deposit as compensation for their time under the terms of the contract. Forfeiting your earnest money deposit (typically about 3% of the purchase price of the home) can set you back a considerable amount depending on the value of the home.
For a $500,000 home, that could mean a $15,000 loss. But beware: depending on the terms of the purchase agreement, the seller may also be able to seek specific performance, meaning they can force you to purchase the home as agreed. Your buying agent can inform you of the specific possible consequences of not going through with the purchase for your particular case.
For this reason, many agents will advise their buyers against removing all contingencies from their offer to appeal to a seller.
Scenario 4: The seller wants to back out of the deal.
Whether they’ve received a better offer from another buyer, decided to undertake some renovations/upgrades on the home or simply no longer wish to sell, there are plenty of reasons a seller might renege on your offer.
While their reason for withdrawing isn’t very important, their timing is. If a seller decides to withdraw their acceptance of your offer before you’ve signed a purchase agreement (and handed over your earnest money deposit), unfortunately, there’s not much you can do.
Although a verbal acceptance can lead to negotiation talks, it does not give you official “dibs” on a home because, generally speaking, only written agreements for real estate are legally binding. As mentioned previously, for an offer to be considered “under contract” for a purchase of property, it must be accepted in writing and signed by both parties. To put it simply, without a signed purchase agreement, legally, the agreement doesn’t exist.
What if you DO have a purchase agreement with the seller?
Much like you, the seller can include contingencies of their own in the purchase agreement. They must be agreed upon by both parties, but once included, a seller’s contingencies function similarly to yours as a buyer. As such, should any of the seller’s contingencies not be satisfied, they can legally dissolve the contract according to the terms of the agreement.
Alternatively, a seller can also use your contingency period to their advantage. For the transaction to proceed, you must both agree that all contingencies have been satisfied. If both parties cannot come to a resolution for any or all contingencies, the contract can be canceled.
This means that a seller can simply refuse to negotiate repairs with you, essentially, compelling you to make a decision about whether to dissolve the agreement. If you were to cancel the agreement under these circumstances, your earnest money deposit would typically be returned to you, and the seller would be free to walk.
The last method a seller can employ to back out of your contract is to simply back out of the contract. While a seller who breaks a purchase agreement isn’t in jeopardy of losing a deposit, they could face a much harsher consequence: a lawsuit.
That’s right! If a seller decides to terminate your purchase agreement in a way that’s not permitted by the agreement, you may have the right to take legal action for breach of contract. As such, this option is likely to be a seller’s last resort.
While offer acceptance might seem like the end of your house hunting journey, it’s also the start of another – the journey to closing. Working with your agent to establish a post-submission game plan can be a great way to prepare yourself for the multitude of things that can happen between “yes” and closing.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.