Expert: John Hendricks - 4/2/2009

Question
QUESTION: My friend and I were about to make an offer on a home in San Francisco. The seller's realtor had told our realtor that a previously accepted offer had been withdrawn, and there were no more offers on the house.  Just a few hours before our appt to write the offer, the seller's realtor informed us that the previously accepted offer in fact was still in play.  So, unforunately, the seller's realtor had given us faulty information in telling us the offer had fallen through. It looks like the previously accepted offer will stand, i.e., the house will get sold to this other person.  This has been a tremendous disappointment for us.  Now my question is ... would it be advisable or even possible for us to approach the buyer to let him or her know that we still want to buy it?  Would it even be feasible?   We could offer the person about 10% more than what he/she paid for it.  I'm hoping that would pay for their closing costs and whatever fees and help them make a profit.  But I have no idea what kind of financing the successful buyer is using ... the mortgage might have a rule against being paid off right away.

Apparently the buyer waffled quite a bit during this process.  My hope is that maybe he or she is not 100% sure about wanting this place.  We've never bought any property before, so we don't have any experience.  But I'm wondering if we can offer the buyer an instant profit, is that something the buyer would be able to take advantage of?  And if we want to do this, how can we make it happen?  Do we just leave a note on the door of the property or what?  

We want to buy this place because it is totally perfect for us, and there is no other place like it.  It's not because it's an investment.  However, I'm sure that a few years from now, the property will have no trouble selling for what are offering.

Thanks for your help.  I'm probably not the only person who has ever had this question!


ANSWER: Dear Anne

Thank you for your question and it is good one as well…

In defense of the listing agent, the seller and current buyer can still honor their original contract as long as all parties are in agreement and there is not another accepted offer to purchase the property in force.

Yes, there is no reason why you could not approach the buyer of the property to purchase it. Your best chance more than likely would be approaching the Buyer before the close of escrow, as it would save you and the Buyer time and money. The problem would be getting the Buyers name in order to present your offer. I have no recommendations other than giving the task to your current agent to find out who the Buyer is.

I am surprised that your agent did not recommend to you to negotiate a backup offer on the property. A backup offer is negotiated as if there is no other offer accepted on the property. You would present an offer to purchase the home through your agent, and it would be negotiated as if there were not an accepted offer on the property, but once you come into agreement, you are placed in backup position. This means that if the primary buyer, and the seller cancel escrow, because you are in backup position, you move to the primary position, escrow is opened, and the agreed upon terms and conditions are now in effect. There is no money deposited for this backup offer position until you are placed into primary position. By negotiating the contract now and gaining an acceptance, all you are doing is reserving the right to purchase the property from the Seller if the primary offer is cancelled. Your agent should be able to provide you with more details on how this works.

Based on your comment about the Buyer waffling in this transaction, it would be worth your time and effort to present a backup offer. It won’t hurt, nor will it cost you any money to be placed in a backup position as mentioned earlier. I am not totally familiar with your situation, but I am sure if you discuss with your current agent my recommendations, he/she will explain in further detail. I hope this helped you… Good luck!

Warmest Regards;
John Hendricks



---------- FOLLOW-UP ----------

QUESTION: Thanks for your response.  What happened more precisely was:

Sunday: We see the house, we want it.  We call the realtor whose card had been left at the open house.  She said there was already an accepted offer on the place, but the buyers don't seem solid so we should make a back-up offer.

Sunday: We call our realtor, he tells us he'll check on the details on Monday.

Monday: Our realtor talks with the seller's realtor.  He calls back and says there's no real problems with the offer that has been accepted and there's no point in us making a back-up offer unless this one falls through.

Tuesday: We take off from work in the afternoon (we could have written the back-up offer that day, but we didn't because of our realtor's advice), and we go looking at other houses but don't find anything we like.

Wednesday at 5 pm: The seller's realtor calls our realtor and tells us the original buyer has backed out!  We are so excited!  Now it seems there is no big hurry to write the offer since there is no competition.  We go to the house with the realtor because it's on lockbox and spend a few hours there really looking at in detail.  I personally fell totally much deeper in love with the house at that time, because we thought it was actually available, and we just needed to decide how much to offer.

Thursday morning we made an appt with our realtor to write the offer at 11:00 a.m. Friday (no longer needs to be a back-up offer).

Thursday at noon, the seller's realtor e-mail's our realtor telling him "hold off on your offer on the house.  The buyer changed his mind again, and the deal is back on!" I was absolutely devastated because we had spent the prior evening in the evening, confirming that it truly was our dream house, when we thought there was nothing standing in our way. I wish our realtor had let us make the back-up offer on Tuesday, so that if any negotiations were going on, our back-up offer would have been there to make sure that the seller did not make any concessions or back down.  But who knows, the buyer may have persisted, regardless of how hard-nosed the seller was.  So it might not have made a difference.  We canceled our plans to make the offer on Friday, since that seemed to be the direction from the seller's realtor.
Friday morning: I wrote the original message to you.
Friday afternoon: My realtor says he talked with his broker; the broker recommends we SHOULD still write the back up offer because something could fall through with the financing.  
Saturday: FINALLY, we write the back-up offer!  Hurray!  I felt so much better.  That's what I had been wanting to do all along.
Sunday: We find out that the seller immediately accepted our offer, since it was higher than the original offer.  And, the buyers missed the deadline for removing their financial contingencies, which was 5 PM Saturday.  Again, we were so excited!  But the seller was required to give the original buyers an additional 24 hours, in writing, so they still had until Monday or maybe even Tuesday morning, depending on how soon the written notice could be given to the buyer.
Monday: We find out that the original buyer DID remove the financial contingency during those extra 24 hours. Darn!  How sad for us.  :(

So now we are back to wondering how we can offer to buy the house from the original buyers. It would be great if we could offer them like $50,000 or something before they close, that would save everybody money.  Maybe they would be happy to have an extra $50,000 to put down on another house.  But if they're in love with the place the way we are, of course they wouldn't take the money.  Even if they would accept it, I don't know how the dealing would proceed.  How would we actually handle the "deal" so that they for sure would back out on the house and we for sure would pay them the amount of money we were offering?  It sounds very complicated.  I don't know how it could work.  I wish there was some way for us (the buyers) to communicate.  It might be a sweet deal for them, but they have no way of knowing what we're thinking.  

Answer
Dear Anne;

I assume you are still in backup position. If you were able to find out who the buyers are in primary position as mentioned in my previous message, (that is no easy process) you can approach and make your offer. At that time if they were to accept your offer, they would cancel their agreement and when you are placed in primary position, you would forward the money to them. This would be ideal if they have not released all their contingencies. If they have though and then they cancel the agreement, they would be considered in breach of contract, and could forfeit their deposit to the Seller. You probably would have to pay them for their out of pocket expenses and their forfeited deposit, but you would be at that time in primary position to buy the home. You can also let them complete the transaction, but you would be the third party in the transaction and they would be the go between party. This would eliminate their forfeiture of the deposit, drastically reduce the costs of the closing costs, but they would still be responsible for commissions paid to your Realtor, whatever they may be. I would recommend before doing this, talk to a real estate attorney to find out the pros and cons of doing such a transaction.

The other alternative is to offer them the $50k after the close of escrow and pay the closing cost to complete the transaction... I would say that would have to be done just prior to the close of escrow if you know who the buyer is, or you would have to hang out at their new house waiting for them to stop by...

In any case, it is a difficult decision for you to make... I would recommend you talk to your Realtor to get the right decisions based on his knowledge of the situation. If he does not know, ask to talk with his Broker/Manager for further recommendations.

Hope this helped! Good Luck!

Warmest Regards;
John Hendricks