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How Seller Can Avoid Being Caught Between Two Buyers

By Ronald R. Rossi and Laurel M. Champion

Early Sound Legal Advice is a Must

You put your house on the market and are besieged with multiple offers. You accept the highest bid. The buyer, a reformed gambler, seems to be playing rather fast and loose, but you assume he will come through when escrow is scheduled to close. Unfortunately, the closing date of June 1 arrives, and the buyer does not comply.

On June 2, your real estate broker brings in a new buyer, with an offer of $50,000 more. This buyer has been pre-qualified and pre-approved and can close in two weeks.

Buyer No. 1, meanwhile, cannot be found and is unresponsive. Should you accept the second offer?

Frequent Occurrence

It should be noted that one of the worst situations any seller can get into is selling the same property to two buyers. Yes, you say, but escrow was to close June 1, and buyer No. 1 never performed – he never signed escrow papers, never put money in escrow, never offered to close the deal. He is “out of contract.”

Why can’t you, the seller, accept the second offer?

This scenario occurs frequently in a hot real estate market. Let’s assume you accept the second offer on June 3, and on June 4 buyer No. 1 returns from Las Vegas. He hit it big and is ready to close the deal. He signs escrow instructions, places all of the money into escrow and says, through his attorney, “You never offered to perform. You never signed escrow instructions. You never put a deed into escrow. Let’s go.” You tell buyer No. 2, who says, “No way! You accepted a contract with me, and I am ready to close, too.”

Resolution Required

Both buyers sue for the property and record a lis pendens. Now you can’t sell to either of them (or anyone else) until both cases are resolved.

This is a dangerous hassle that could have easily been avoided. First, you should have consulted a competent real estate attorney. A competent broker also would have advised you to make sure the second contract included release language stating that it was conditioned upon and subject to getting release of the first contract within a certain number of days.

Then you should have put buyer No. 1 into default. His failure to close escrow on time does not necessarily mean that he is in default and you are free to enter into a contract with another buyer. The seller must first tender performance. In other words, you must sign escrow papers, execute a deed and offer to perform the contract and sell the property to buyer No. 1. By offering to perform at or around the closing date, the seller puts the buyer in default. Of course, many sellers do not want to do this when there is a backup offer for more money. Instead, they hope to merely eliminate the first buyer. But that buyer can file a lawsuit to try to leverage himself into some sort of monetary settlement. Whatever additional money you are being paid by buyer No. 2 may well be spent settling a dispute with buyer No. 1.

In these kinds of situations, it’s imperative to work with a knowledgeable, experienced real estate broker and attorney before accepting a second purchase offer. The right professionals will help you avoid legal problems while selling your home and help make sure that you end up with the most money in your pocket.