Contingency Clauses

If both offers are accepted, who wins?

March 1, 2008

Q: When I presented my buyer’s offer on a property, the listing broker told me there was an accepted offer on the property, but with a contingency. A 48-hour right of first refusal clause allowed the seller to cancel the contract unless the buyer removed any contingencies.

The sellers countered my client’s offer but did not include a contingency making the counteroffer subject to release from the first accepted offer. My buyer accepted the counteroffer. Two days later, the listing broker stated that the first buyers had removed the contingency and that the seller intended to sell the property to them. What were the listing broker’s obligations under the Code of Ethics?

A: Standard of Practice 1-7 of the Code requires: “When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counteroffers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing.” It also says that “REALTORS® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease.”

By presenting and then negotiating your buyer’s offer, the listing broker fulfilled the obligation to present all offers and counteroffers until closing. However, since the seller’s acceptance of your buyer’s offer was not made contingent on the termination of the first offer, the listing broker had an obligation under Standard of Practice 1-7 to recommend that the seller obtain legal advice prior to accepting your buyer’s offer.

If the listing broker made the recommendation to consult legal counsel, and the seller refused to do so, then the listing broker has not violated the Code. In either case, the seller now has two contracts to sell the property to two different people—creating the potential for litigation. That risk is why the Code strongly encourages the parties to involve their counsel before considering a second contract.

Bruce Aydt

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.