Offer to Purchase Real Estate: Binding vs. Non-Binding

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There are two types of Offers to Purchase Real Estate—binding offers and non-binding offers.

Often the type of offer is easily identifiable by looking at the upper right-hand corner of the document.

Binding offers are usually labeled “FORM B” and non-binding offers are labeled “FORM NB”.

The type of offer form used is determined by the buyer’s agent who prepares the offer.

As its name suggests, a binding offer is an enforceable contract for the sale of real estate.  It is enforceable regardless of whether a P&S is signed by the parties later on.

Such an offer will contain language, usually in all capital letters and underlined, stating:

IF THE PARTIES ARE UNABLE TO AGREE ON THE PURCHASE AND SALE AGREEMENT, THEN THIS AGREEMENT SHALL BECOME THE BINDING AGREEMENT BETWEEN THE PARIES.

(Although binding offers can be enforced by the courts, most mortgage lenders will refuse to approve a loan unless a formal P&S is agreed to and signed by the buyer and seller.)

A non-binding offer allows the parties to walk away from the deal if the terms of a P&S cannot be agreed upon within a certain amount of time.

Non-binding offers will contain a clause similar to the following:

THE PARTIES AGREE TO NEGOTIATE WITH EACH OTHER IN GOOD FAITH REGARDING THE TERMS AND CONDITIONS OF THE PURCHASE AND SALE AGREEMENT, IF, NOTWITHSTANDING SUCH GOOD FAITH NEGOTIATIONS, A PURCHASE AND SALE AGREEMENT HAS NOT BEEN EXECUTED, THEN THIS OFFER SHALL BECOME NULL AND VOID.

Such offers are, according to one court, the commercial equivalent of “allowing persons to hug before they marry.”  Goren v. Royal Invs. Inc., 25 Mass. App. Ct. 137, 142 (1987).

If you’ve signed a non-binding offer and you’re happy with its terms, it’s important that the listing office and attorneys act swiftly in drafting and negotiating the terms of the P&S.

The longer the process takes the greater the chances are of the other party finding and pursuing a better deal elsewhere.  If that happens, a non-binding offer will give you almost no legal recourse against them.

The average time between the signing of the offer and the signing of the P&S is about a week to ten days.

If you have any questions regarding real estate law or the closing process, please contact me at justin@jrmccarthy.com.

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