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When Does an Offer to Purchase Become Binding?
Is an offer binding the moment the seller signs it? Must the payment of earnest money be made before the seller is legally bound?
Consider these scenarios:
1. A seller signs an offer, but the buyer delays the earnest money payment because they made multiple offers and want to pick the best deal.
2. A seller signs an offer but has to wait for the buyer (Buyer 1) to return from an out-of-town trip to hand over the earnest money check. In the meantime, another buyer (Buyer 2) comes along with a higher offer. Can the seller accept the higher offer despite already signing Buyer 1’s offer but not yet receiving the earnest money?
3. A seller doesn’t sign the offer but accepts an earnest money check—without depositing it—while waiting for a potentially better offer. Is the seller obligated to proceed with Buyer 1’s offer?
These are real-world situations I’ve encountered. To avoid such uncertainties, I’ve added the following clause to my Offer to Purchase/Letter of Intent template:
“This Offer shall be considered binding upon both the SELLER and the BUYER upon:
1. The SELLER’s signature on the space provided below; and
2. The SELLER’s receipt of the earnest money check from the BUYER.
Should the SELLER receive the earnest money check but fail to deposit it, this Offer shall still be considered ACCEPTED, and both the SELLER and the BUYER shall be bound by the provisions stated herein.”
Some lawyers might argue that this clause merely states the obvious. However, I believe including it discourages either party from stretching interpretations to suit their interests. It also helps set clear expectations upfront—after all, a little clarity never hurts.
What do you think?