Dear Monty: Is a verbal offer binding?
Reader Question: I am going through a Realtor, and I verbally agreed to a price from a guy who low-balled by over half the asking price. The buyer is still nit-picking everything and taking forever, so we have signed no papers. Now I have another offer with a personal friend. I want to know if I can accept this other offer and still pay the Realtor fee because she deserves it.
Monty’s Answer: It sounds like the low-ball buyer is going through the due diligence without a signed purchase contract. Or, are you referring to the closing documents when you say you have signed no papers? Assuming it is the former, you have no obligation to the low-ball buyer. It appears your agent is negligent for not obtaining a written agreement. It is possible that the buyer refused to enter a contract and took the chance that no other buyer would surface. If you accept the new offer, you are obligated to pay the agent if the listing agreement is still in force.
Only written contracts in real estate enforceable
Anecdotally, there may be a few states where a real estate contract is enforceable on a handshake if there is a witness. Most states require a real estate contract to be in writing to be binding. One reason for this is because the stakes are so high, as compared to most other consumer transactions. Real estate is not the right place for verbal deals. It is fraught with potential misunderstandings, hurt feelings and unfair treatment to one (sometimes both) party.
The legal age in most states is between 18 and 21. Illegal actions can void the contract. There must be price agreement and consideration, which means exchanging something of value. There must be consent, and any contingencies must be satisfied.
The seven real estate contract requirements
In my home state, seven elements must be present to make a contract enforceable. Each state’s laws are different, so there could be minor variances from state to state. Assuming one meets the underlying requirements of a contract, the purchase agreement in my state requires:
1. Name of the buyer - Whoever will take the title, like a husband and wife, or a corporation.
2. The property - A street address, parcel number or the legal description.
3. Purchase price - The amount of agreed-upon consideration
4. Earnest money - To demonstrate good faith on the part of the buyer.
5. Included property - Fixtures physically attached but often removable.
6. Property not included - Fixtures that the seller will take with them or rent.
7. Buyer and seller signatures - perfect the agreement.
The slide into complexity
One may wonder, if these are the requirements, why are real estate contracts 10 to 20 pages long? In my opinion, there is no pat answer. The evolution of real estate practice is borne in the cause of fairness to both parties. The purpose is noble. Ironically, the complexity created over seventy years has given birth to a system that creates the illusion of safety. The industry is painting the ceiling when the roof leaks.
Richard Montgomery is the author of “House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Find him at DearMonty.com.