What is the ruling on backing out of selling an item after an agreement with the first buyer due to the presence of another buyer offering a higher price or a closer location?

It is not permissible for you to sell the commodity to one who bids more than the first bidder after you both have settled on it and agreed upon the price and the commodity. You must refrain from bargaining with the second person over the commodity that the first person bid on, because that is forbidden after the price has been settled.

However, if you sell the commodity to the second person, the sale is valid according to the majority of scholars, though sinful.