Disclosure Of Back-Up Contract

QUESTION: An agent in my firm has one of her listings under contract. The buyer is represented by an agent with a different firm. A second buyer has submitted a back-up  offer using the Offer to Purchase and Contract and Back-Up Contract Addendum which the seller would like to accept. Assuming the seller accepts the backup offer, would  our firm have an obligation to let the primary buyer know about the existence of the back-up contract?

ANSWER: No. The existence of the back-up contract is not a material fact that would have to be disclosed to the primary buyer. According to the Real Estate Commission’s  License Law and Rule Comments, material facts include facts “relating directly to the ability of the agent’s principal to complete the transaction.” The existence of the back-up  contract does not relate directly to the ability of the seller to complete the transaction with the primary buyer. On the other hand, there is nothing that would prohibit disclosure  of the back-up contract to the primary buyer. Your listing agent should discuss with the seller whether it’s in the seller’s best interests under the circumstances to disclose or  not disclose and then act accordingly.

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