Q: I’m interested in a house and the seller’s Realtor is pressuring us to sign a binder. What is a binder and do I have to sign it?
A: Mitchell Hirsch, a real estate attorney with Hirsch & Hirsch in Hempstead, says that a binder agreement is not a contract for the sale of the property but an offer to purchase the property to show good faith that you are truly interested. “It’s an agreement to agree in the future that is subject to a more formal contract,” continues Hirsch. The binder agreement may be accepted or rejected by the seller of the property.
“If the agreement is accepted, the interested buyer typically puts down $500 to $1,000 of the purchase price," he says. "The binder check is normally held by the seller’s Realtor and then given to the seller’s attorney for deposit into an escrow account upon the signing of a real estate contract of sale."
The binder agreement usually contains conditions under which the potential buyer would be willing to purchase the property: specific price, property conditions or financing arrangements — typically called contingencies. Also included is an on or about closing date. Usually within 10 days, the buyer is said to have the right to go into a formal contract with the seller. However, since the binder is not a formal contract, the seller can go for a higher bid if he’s offered one and bound to return to the binder, cautions Hirsch.
“A careful lawyer would tell his client not to worry about putting down a binder," he says. "If his client is really interested in the property, he should advise him to go straight to contract. The reason that many brokers push for binders is that they are often looking to protect their commissions."
A broker’s commission agreement is included with the binder, and the seller is asked to sign it. That would assure the Realtor that they will be acknowledged as the agency that procured the purchaser, preventing the seller from bypassing the Realtor’s fee and making a private deal with the purchaser.
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