Should You Sign A Binder?


When you approach the real estate agent of a seller, you might be told that you have to sign a binder if you want to purchase the property in question. Is a binder something you want to sign, and can the seller's agent force you to sign a binder in order to purchase the property?

What Is A Binder?

A binder is an informal agreement that states that a buyer is interested in buying a property. Within the binder the buyer can put the conditions under which they would be interested in signing a sales agreement for the property. If the seller accepts the binder, then the buyer would put down a deposit of some sort to hold the property until the sale is complete.

Is A Binder Binding?

Despite its name, a binder is not a legally binding agreement. The seller can choose to sell to someone else for a higher price if they want, even if the binder is in effect. All the seller would have to do is surrender the deposit and they can sell outside of the binder. The conditions for the sale set up in the binder are also not binding until the sales agreement is finalized.

What Is The Process?

In a perfect world, the buyer and seller would sign the binder and the seller would accept the deposit from the buyer. Within 10 days of signing the binder, the terms of the binder are incorporated into the final sales agreement which both parties sign. That means that the binder eventually becomes the foundation on which the sales agreement is built.

Do I Really Need A Binder?

A binder is a non-binding agreement that two parties sign that is ultimately going to be replaced by a full sales agreement within 10 days or less of signing the binder. All the seller has to do to sell the property to someone other than the buyer who signed the binder is surrender the deposit back to the buyer and the seller can sell to anyone. The truth is that a binder does not in any way enhance a sales agreement and it does nothing to solidify the buyer's stance.

Should I Use A Binder?

There is no harm in using a binder, except for the possibility of the property getting sold out from under you to someone else. Your best bet is to negotiate a final sales price with the seller and then put all of the conditions of the sale into a real sales agreement. A sales agreement is legally binding on both parties.

There are some real estate agents who insist that potential buyers sign a binder to protect the seller of a property. But a binder is only a promise to create an agreement and it is a promise that can easily be broken. Instead of wasting time and money on a binder, a buyer should insist on moving directly into negotiating a sales agreement.

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