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Ohio REALTOR magazine sneak peek: Avoiding the ‘land mines’ of contract negotiations

The following article is reprinted from the Summer/Fall issue of the Ohio REALTOR magazine.

By Peg Ritenour

In today’s market, presenting offers and negotiating counteroffers, especially when there are multiple offers, can be a minefield for even the most seasoned REALTOR. Sometimes agents are not sure if there is a binding contract or whether the seller may accept another offer. These situations can create dilemmas for real estate agents and the parties who are relying upon them for guidance. If mishandled, the result can be disciplinary action for the agent and potential litigation between the parties. The purpose of this article is to review basic principles of contract law and agency duties that will hopefully help agents in handling these situations.

To begin, let’s review the basic requirements necessary to have an enforceable contract. First you must have an offer and that offer must be accepted without any changes to the terms of the offer and within the time frame the offer is open. The person making the offer (the offeror) must then be notified of the acceptance. This is frequently referred to as delivery of the acceptance. While Ohio law does not require a particular form of delivery, the terms of the contract may specify the manner of acceptance and delivery. For example, the contract may provide that the seller must deliver a signed copy of the accepted offer back to the buyer for the contract to be valid. Absent such language, verbal notification that the offer has been accepted is usually deemed to constitute effective delivery.

It is important to note that notification that the offer is accepted does not have to be made directly to the offeror. Instead, if the offeror is represented by an agent, communications that are made to his agent are deemed to constitute communications to the offeror. Thus, if the listing agent is notified that the buyer has accepted the seller’s counteroffer, this would be considered effective communication to the seller and there would be a binding contract (assuming the terms of the contract did not require another form of delivery).

An additional requirement for a contract for the sale of property to be enforceable is the Statute of Frauds. This law requires that contracts for the sale of real estate must be in writing and must be signed by the parties to be enforceable. Thus, although a seller may verbally accept an offer and that fact is communicated to the buyer, if the seller did not sign the contract, the verbal acceptance would not be binding on the seller and he would be free to accept another offer that he receives.

Frequently when buyers or sellers are out of town or unavailable, real estate agents will communicate the terms of an offer or counteroffer by telephone. If the buyer or seller verbally indicates their assent to the offer, the agent will write on the offer “accepted per telephone conversation” and date and initial this notation. Under the Statute of Frauds, such a notation by the agent would not be sufficient to bind the buyer or seller to the contract unless the agent had been given proper authority to sign their name to the contract through a recorded power of attorney. (It should be noted that a listing contract does not give the agent the authority to sign for the seller.)

Increasingly, REALTORS are embracing the use of technology in their real estate transactions. Both federal and Ohio law provide that electronic signatures satisfy the requirement that real estate purchase contracts must be in writing and must be signed to be enforceable. However, it is important that the parties agree to conduct the transaction electronically.  Moreover, as REALTORS increasingly use emails to communicate with clients, they should be careful that such communications do not inadvertently create an intended agreement. This can be easily addressed by including a legend to emails that expressly states that it is not intended to be a legally binding or verbal agreement between the parties.

The basics of contract law often become crucial, especially when more than one offer is received. As stated above, the agent may not be sure whether they should present an offer, especially if there are other offers or counteroffers pending. Although each of these situations can be different, the following are some fundamental principles that agents should keep in mind when handling offers and counteroffers:

  • YOU MUST PRESENT ALL OFFERS in a timely manner. Under Ohio license law “timely” is defined as soon as possible under the particular circumstances. You may not refuse to present an offer because you believe it is too low or merely because the seller previously rejected a similar offer. Unless the seller has specifically instructed you not to present offers below a stated price or that include certain terms, you must present all offers that you receive. Such instructions not to present certain offers should be provided in writing for your protection. This duty to present all offers continues even though there may be ongoing negotiations with another buyer or even a pending contract.
  • PRESENT ALL OFFERS OBJECTIVELY. Although you may be working directly with a buyer making an offer on your listing, you must present all offers in an unbiased manner. Each offer should be discussed with the seller objectively. Of course, the seller is free to accept whatever offer he chooses without regard to whose offer was made first or whether a particular offer would result in a better commission to the listing broker.
  • OFFERS DON’T HAVE TO BE REJECTED IN WRITING. Offers and counteroffers can be rejected verbally. However, it is always best for the seller or buyer who is rejecting that offer or counter offer to do so in writing so there is no question that the offer was presented.
  • IT’S UP TO THE SELLER WHETHER TO DISCLOSE THAT A MULTIPLE OFFER SITUATION EXISTS. The fact that the seller has received more than one offer is confidential information that the listing agent may not disclose without the seller’s consent. If the seller does instruct the listing agent to disclose that there are multiple offers, the listing agent must also disclose – if asked by the buyer’s agent – whether the other offers were written by the listing agent, another agent in the listing brokerage or by a cooperating agent. This is required by Standard of Practice 1-15 of the NAR Code of Ethics.
  • THE SELLER CAN DISCLOSE THE TERMS OF AN OFFER TO OTHER BUYERS. In some multiple offer situations, a seller may direct their listing agent to disclose the terms of one offer to competing buyers in an effort to get them to make a higher offer. For example, a seller who receives three offers may instruct the listing agent to tell two of the buyers who made lower offers that the third buyer made an offer of $X and give them an opportunity to raise their offer. Under Ohio law, a seller can absolutely disclose the terms of one offer to another buyer because the seller owes no duty of confidentiality to the buyers unless he has signed a confidentiality agreement. Further, such an instruction by a seller to the listing agent would be lawful and therefore the listing agent would have had a duty to follow this directive from the seller. The only exception would be if the listing agent represents that buyer as well, and is acting as a dual agent. Due to this relationship with the buyer, the dual agent would also need the consent of the buyer to disclose the terms of the buyer’s offer to other competing purchasers. Of course, it is unlikely the buyer would give such consent.
  • OFFERS CAN BE REVOKED. Often the person making an offer or counteroffer has second thoughts and wishes to withdraw their offer. This generally occurs when a seller who has made a counter offer receives a second offer that is for a higher price. In this case, as long as the seller has not been notified that the counteroffer has been accepted, it can be revoked by the seller. This is true regardless of the fact that the counteroffer included language making the offer open for acceptance for a certain period of time. In order for revocation to be effective, however, the seller’s agent must deliver notification that the seller is revoking the counteroffer to the buyer or the buyer’s agent. Although this revocation could be done verbally, the best method is of course to do so in writing and delivery should be confirmed to the buyer’s agent or buyer.
  • YOU ONLY WANT ONE CONTRACT. Although this may seem obvious, a seller can easily find themselves obligated to more than one contract if a multiple offer situation is mishandled. For example, if a seller makes counteroffers to more than one offer and they are both accepted, the seller will be bound by two different contracts. This can also happen if a seller accepts a second offer without effectively revoking a counteroffer he previously made on another offer. Another instance where a seller can become obligated on more than one contract is where a second offer is not clearly designating as a backup contract. Because these situations can result in costly litigation, it is important for agents to recognize the potential for dual contracts to develop and to help the seller to avoid this pitfall.

Although each situation is unique, these basic principles can help agents analyze multiple offer situations and guide their clients and customers in the right direction More information on handling offers can be found in OAR’s White Paper on Contract Law. Of course, any questions as to the validity or enforceability of a contract should be referred to the parties’ own attorneys and agents should avoid giving such legal advice.

Tags: Association news, legal