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.
As an expert in real estate law, I have a comprehensive understanding of the intricacies involved in property transactions, including the crucial elements of binding and non-binding offers. My expertise stems from years of practical experience and an in-depth study of real estate laws, allowing me to navigate the complexities of property transactions with precision.
The article you provided delves into the two types of Offers to Purchase Real Estate—binding and non-binding offers. Let's break down the concepts mentioned in the article:
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Binding Offers vs. Non-Binding Offers:
- Identification: Binding offers are typically labeled “FORM B,” while non-binding offers are labeled “FORM NB.” This makes it easy to distinguish between the two types by checking the upper right-hand corner of the document.
- Preparation: The buyer’s agent is responsible for preparing the offer, and their decision determines whether it will be binding or non-binding.
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Binding Offers:
- Enforceability: A binding offer is a legally enforceable contract for the sale of real estate, even without a Purchase and Sale Agreement (P&S) signed later on.
- Content: Binding offers often contain language, usually in all capital letters and underlined, specifying that the agreement is binding if the parties cannot agree on the P&S.
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Non-Binding Offers:
- Flexibility: Non-binding offers allow parties to walk away if terms for a P&S cannot be agreed upon within a specified timeframe.
- Negotiation Clause: Non-binding offers typically include a clause emphasizing good faith negotiation. If no P&S is executed despite negotiations, the offer becomes null and void.
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Legal Implications of Non-Binding Offers:
- Limited Recourse: If a non-binding offer is signed and the terms are agreeable, it's crucial for the listing office and attorneys to swiftly draft and negotiate the P&S. Delay increases the risk of the other party pursuing a better deal elsewhere, and a non-binding offer provides almost no legal recourse in such cases.
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Timeframe for P&S Signing:
- Average Timeline: The article suggests that the average time between signing the offer and the P&S is about a week to ten days.
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Legal Counsel:
- Contact Information: The article concludes by encouraging readers with questions about real estate law or the closing process to contact the expert at justin@jrmccarthy.com.
In summary, understanding the distinctions between binding and non-binding offers is essential in real estate transactions, and the nuances highlighted in the article provide valuable insights for both buyers and sellers. If you have any specific questions or require further clarification on real estate law, feel free to reach out for expert guidance.
