Beware When Buying a Condo in Hoboken – Final Doesn’t Always Mean Final
The Hoboken condo and real estate market is still reasonably strong and a surprising number of Hoboken condos and brownstones elicit multiple offers. When this happens, the listing agent can handle them in two basic ways:
- Competing bids
- “Final and Best”
Competing Bids Can Cause Chaos or Worse
With competing bids, the buyers bid against each other until the seller accepts one offer and says “stop – no more showings, no more offers”. Very often the seller will play one buyer against the other to keep outbidding each other to get the highest price. This strategy backfires when both buyers get frustrated and walk away. Occasionally a seller will accept one buyer’s offer, sign contracts and begin attorney review with that buyer. Then an even higher offer comes in, possibly even after the the end of attorney review when the sales contract is supposedly binding, and the seller will dump the first buyer or try to get the first buyer to top the bid again. This results in hard feelings, a disgruntled first buyer and may even end in a law suit.
The idea behind “Final and Best” is for the seller to be as fair as possible to everyone. The listing agent tells the buyers’ agents that each buyer should present their “Final and Best” by a certain deadline. The seller will then select which offer is most attractive and move forward with that buyer. “Final and Best” is supposed to avoid tangled mess of multiple bidders trying to out bid each other. It is often presented to the buyers as a way to “level the playing field”.
As They Say in Latin, Caveat Emptor – Buyer Beware!
Even when the seller’s agent says they are doing “Final and Best” in the end, it’s often entirely meaningless. Well how can that be, you may wonder? Here is a comon scenario:
- Seller has multiple buyers interested in the property
- Seller’s agent informs all buyers that they have until 5pm tomorrow to submit their “Final and Best” offer.
- 3 buyers (Buyer A, B, & C) submit bids in different amounts and with different terms (closing date, amount of downpayment, etc.)
- Seller chooses Buyer B. Buyers A and C are informed of seller’s decision.
- Seller and Buyer B sign contracts, hire attorneys and begin the attorney review process. They may complete attorney review. Buyer B may have even paid a significant deposit to Seller.
- Buyer A reappears raises Buyer B’s offer by $50,000.
- Seller is greedy, can’t resist the dough, and tells Buyer B to take a walk.
- Buyer B is furious, having now set his heart on the property, decided where to put the furniture and what color to paint the walls. Buyer B has also hired an attorney to the tune of $1,000 or so.
- Buyer B’s agent calls seller’s agent and reads her the riot act.
- Seller’s agent says “sorry – I’m obligated by law to present all offers to the seller and seller can do whatever”.
- Buyer B is left to move on to the next property or take legal action. As I recall from my days as a lawyer, property is unique and specific performance may be an appropriate remedy, i.e., seller may be forced by the court to sell to the Buyer B on the original terms. Of course, few buyers bother to incur the cost of a lawsuit but it is a possibility.
So much for “Final and Best”. Now, of course, there are some sellers with a sense of fairness that actually superceeds their greed. Upon having committed to a buyer, they will not entertain any further offers, even if higher than the accepted one. Buyers should remember, though, that just because the seller represents that they are doing Final and Best, it may be neither.
When is a Deal a Deal?
So when can a buyer relax and know that they’ve bought the property? At closing, of course. Prior to closing buyers should keep in mind that anything can and does happen. During attorney review, the contract is not even binding. The risk to the buyer is greater before buyer has put any money on the table. Once buyer has paid the initial deposit, done the inspection, obtained and delivered a mortgage commitment, the risk lessens. Chances are, the property is no longer being shown. In fact, a smart buyer will make a term of the offer be that upon acceptance of the offer the property is taken off the market. The more time that goes by, the fewer other buyers there are likely to still be floating around. But regardless of what the contract says, a seller can still change his or her mind and the buyer’s only recourse is an expensive lawsuit. We all know that when that happens, it’s the lawyers who win.