What is the expiration date?
When I write an offer for a home purchase, one of the required fields is the expiration of that offer. While I am all for buyers who trust their agents and defer to their expertise, I also believe that agents need to be sure their buyers understand what they are signing. As with many details of the offer, some agents don’t bother to discuss the expiration date with their buyers. Therefore, they don’t know what it means, nor how it can be used strategically. I want to change all that!
What does it mean?
The expiration date determines the time/date at which the offer, if signed exactly “as-is” by the seller, no longer binds the buyer. When a buyer submits an offer, he signs it. If the seller accepts it with no changes and signs it before it has expired, the contract is executed and is binding. If the seller signs it after it has expired, while the buyer can choose to honor it, he is not required to.
Why is the expiration date important?
Consider this scenario: you put on offer in on a house and the seller doesn’t respond immediately (maybe he is waiting for a better offer). Meanwhile, you tour another property and decide you like that one better. If you write and offer and it is accepted, what happens to that original offer? If it has expired, you have nothing to worry about. If, though, it has not expired and the seller has signed it, you are contractually obligated to follow through on that purchase. If both sellers sign offers before they expire, you’ve gotten yourself into quite a pickle. (Yes, there are ways to “get out of the deal”, but that’s a separate topic).
Aside from the legality issue, most buyers are not emotionally prepared to pursue a second property until they know whether the first one might work out. So having no expiration date leaves the possibility of a deal hanging in the air with no specified time frame. While a buyer and seller can negotiate a contract after the expiration date, defining that date allows a buyer to know when he can refocus on another property without still being entwined with the first one.
How can the expiration date be used strategically?
Does the expression “A bird in the hand is worth two in the bush” sound familiar? It can be applicable to a home purchase. This concept only applies if you submit a strong offer. The idea is to pressure the seller to accept it before it expires. If it’s a good offer, if he waits until after it’s expired to accept it (because he’s hoping to get better offers), you might not honor it. Sometimes, sellers are confident they will receive similar offers from other buyers or that you will honor your offer, even if it is not accepted before it technically expires. Others subscribe to the school of “bird in the hand”.
Choose an expiration date consciously
Any offer for a home is a long document with lots of blanks to fill in–the price, settlement date, amount of deposits, inspections contingencies–and they all have at least some effect on how attractive the offer is to the seller. The expiration date is no different. An offer that allows him a week to respond is very appealing! He can wait to get other offer and if nothing better comes along, he signs your offer without worrying you’ll have moved on or will no longer offer as much. However, if your expiration date requires a response in 24 hours, he now has to decide if he wants to risk losing you as a buyer by not replying within that time frame. You can only use the expiration date strategically if you understand what it means to both buyer and seller.