These days, a common refrain heard from real estate agents is that you don’t know a listing is sold until title transfers from the seller to the buyer. Before the housing downturn, there was a point during the transaction that buyers and sellers had some certainty that the closing would occur. Now, more deals fall apart, so there is less certainty in general.
Before a listing has a chance of selling, the buyers and sellers must agree on the terms of the purchase agreement. This can include such things as the contract contingencies and how long they will run, the closing date, when possession will be delivered to the buyers, and who pays which sale fees, such as transfer taxes and title insurance premiums. This is in addition to agreeing on the purchase price.
HOUSE-HUNTING TIP: During the negotiation period, the listing is still for sale. Don’t assume that because you and the sellers have verbally agreed on price and terms that you have an accepted offer. Verbal agreements to sell homes are not legally binding until they are written.
Many buyers and sellers are confused on this issue. For example, let’s say the sellers issue a counteroffer to the buyers and give three days for a response. During that time a better offer is presented to the seller. If the first buyers have not signed the sellers’ counteroffer and delivered it to the sellers or their designated agent, the sellers can withdraw the counteroffer and sell their home to the second buyer.
Likewise, the buyers might counter the sellers’ counteroffer and give them a few days to respond. If during that time and before the sellers have signed and delivered the counteroffer to the buyers, the buyers can withdraw it and buy another house.
The delivery aspect of the counteroffer process is very important. Just signing a counteroffer from the other party doesn’t mean that you have a ratified contract. It’s a good idea to have the person who receives a signed counteroffer to indicate in writing that the signed document has been received.
Some contracts and counteroffers include a section to sign or initial — and date — to acknowledge acceptance. This way there is no confusion. It would be difficult to withdraw a counteroffer that had already been signed by the other party and delivered to the maker, particularly if it includes written confirmation of acceptance.
When buyers and sellers have agreed to all terms of the purchase contract and confirmed this with their signatures, a listing is said to be pending sale. This means that a contract for sale has been accepted, but the transaction is not yet closed.
During the pending-sale period, buyers work to satisfy the contract contingencies such as those for inspections and loan and appraisal approval. Depending on how the contract is written, the buyers’ deposit is usually returned if they try in good faith to satisfy contingencies but are unable to do so.
Sellers should continue to entertain backup offers during the pending-sale period so that they don’t have to put the house back on the market if the transaction falls apart due to inspection-related defects or a low appraisal. A backup offer is one that’s made in secondary position, subject to the collapse of the first contract.
After all contingencies have been removed, a listing is often said to be sold. Usually, in this case, the transaction does close. But, with today’s stringent lender qualifying criteria, some deals fall apart at the last minute even after the buyers have been approved.
THE CLOSING: This can happen if the lender’s underwriter requires a second appraisal or additional financial documentation from the buyers at the last minute, and isn’t happy with the results.