WHITE PAPER: Basis Contract Law, Purchase Agreement
FAQS: Contracts: Listings
Published by OAR’s Legal Services Group
Summary: FAQs: Verbal and non-verbal listing agreements; transferring listings to another agency.
FAQS: Contracts: Purchase
Published by OAR’s Legal Services Group
Summary: FAQs: Answers Offer to Purchase contract questions.
Published by OAR’s Legal Services Group
Summary: FAQs: Land contracts and unimproved real estate.
Published by OAR’s Legal Services Group
Summary: FAQs: How to legally deal with multiple offers and counter offers.
Published by OAR’s Legal Services Group
Summary: FAQs: Working with contract law and buyer brokerage.
1. Are listing agreements required to be in writing?
A. No. The Statute of Frauds, which specifies those contracts which must be in writing to be enforceable, does not apply to listing or other agency agreements. Therefore, although not adviseable, you could have a verbal listing agreement with a seller.
2. Is a verbal extension to a listing agreement legally binding?
Answer: If a listing agreement does not provide that any changes must be made in writing, a verbal extension for a definite period of time would be enforceable. The problem with verbal agreements is being able to prove what was agreed to. Therefore, the prudent method to amend any agreement would be in writing signed by both parties.
3. A home is listed but your buyers are excluded from the listing agreement. Must you deal with the listing broker on this home or can you go directly to the sellers?
Answer: Under Ohio law, all negotiations must take place with a broker who has an exclusive listing with a seller. The best way to handle this situation is to contact the listing agent and notify them that you are working with the excluded buyers. As the listing broker will not earn a commission on this sale the listing agent will probably refer you directly to the sellers.
4. What is an open listing?
Answer: A listing contract in which the broker’s commission is contingent on the broker producing a ready, willing and able buyer. The listing broker will receive a commission only if the property is sold through the efforts of the listing broker.
5. If a broker has decided to close his company and activate his sales license with another brokerage, can listings with the broker’s company be taken to the other brokerage?
Answer: No. Listing agreements are personal service contracts and are only assignable with the consent of the seller. The sellers would have to either sign such an assignment or enter into a new listing agreement with the other brokerage.
6. Does Ohio license law require any specific provisions in a written listing agreement?
Answer: A written listing agreement must contain a definite expiration date , the fair housing logo, fair housing language and a place for the seller(s) to sign and date.
1. If a contract to purchase does not specify a closing date, is the contract void?
Answer: No. If a contract doesn’t specify a date or time of performance, a reasonable time will be implied.
2. Do you have to present a verbal offer to purchase to a seller?
Answer: Yes, you are obligated to present all offers to purchase to the seller. While you should certainly attempt to persuade the prospective purchaser to reduce the offer to writing, if he/she refuses, the offer should still be presented to the seller. However if the offer is accepted, the contract will not be binding or enforceable until it is in writing and signed.
3. An offer to purchase was “faxed” to an out-of-state seller. He signed it and “faxed” it back to the listing broker. Is this “faxed” contract legally binding?
Answer: The validity of facsimile transmissions is still a new issue in contract law. Basically a “faxed” contract is a copy of the contract and the signature of the parties. Because the law prefers original documents, faxed transmissions should be followed up with signatures on the original documents. In the event these originals are lost or one of the parties refused to sign the original and refused to perform, a court would probably admit the faxed document into evidence, unless the other party could establish that the faxed copy was forged or altered.
4. If there is a contract to purchase pending do you have to present a subsequent offer to purchase that is received?
Answer: Yes. Unless you are instructed otherwise by the seller, all offers must be presented until the date of closing. Of course any such subsequent offer should only be accepted by the seller as a back-up contract.
5. If a contract contains an inspection contingency and the inspection reveals a defect can the buyer terminate the contract or must the buyer allow the seller to repair the defect?
Answer: The terms of the contract dictate what action can be taken when the inspection reveals a defect. Therefore, the terms of the inspection contingency should be carefully reviewed. The contract may give the buyer the right to terminate the contract or it may provide that the seller can repair the defect. If the seller will not make the repair the buyer can usually terminate the contract or accept the defect as is. Inspection contingencies vary and the parties should be aware of its terms prior to entering into the contract.
6. If a contract contains a first right of refusal clause (concurrency clause) and the seller gives the buyer notification pursuant thereto, must the buyer remove all contingencies in the contract (i.e. financing) or must only the sale of their home contingency be removed?
Answer: The terms of the first right of refusal clause dictate if all contingencies or just the sale of their home contingency must be removed. A properly written contingency would clearly answer this question and the parties should understand those terms before entering into a contract.
7. If a home does not appraise for the purchase price can the buyer automatically get out of the contract?
Answer: Clearly the buyer will be able to do so if the contract was contingent upon the home appraising for the purchase price. If not, the only other grounds for the buyer to get out of the contract will be if the contract was contingent on the buyer obtaining a specific amount of financing and the buyer cannot obtain that financing due to the low appraisal.
8. Can a person under the age of 18 enter into a real estate purchase contract?
Answer: If a minor, someone under the age of 18, enters into a contract, the contract is voidable or may be canceled by the minor before or within a reasonable time after reaching age 18.
9. The seller has received a full price offer on his property. However, he is refusing to accept this offer and says he wants to make a counteroffer for more than the asking price. Can the seller refuse a full price offer and “counter” for more than the listed price?
Answer: Yes. The seller is not legally required to accept an offer because it is “full price” and he can counter for more than the listed price. However, the listing broker could bring a claim against the seller for his commission based upon the theory that the broker has produced a ready, willing and able buyer on the terms provided for in the listing contract.
10. On a listing submitted to MLS several appliances were checked as staying with the property. A contract to purchase was subsequently negotiated and closed. When the seller moved out, they took the appliances listed in the MLS, claiming that because the purchase contract did not provide that the appliances stayed, they did not have to leave them. The buyers thought they would stay because they were listed in the MLS. Who is right?
Answer: The sellers are. Although the appliances may have been listed in the MLS, the purchase contract is the legal document that controls the terms of sale between the buyers and sellers. Unless the appliances were listed in the purchase contract, the sellers were free to take them.
11. Is earnest money required to have a legally binding contract?
Answer: No, earnest money is not required under Ohio law to have a binding contract.
12. Can a buyer make a purchase contract contingent on the seller paying the buyer broker’s commission?
Answer: Yes. While Standard of Practice 16-16 prohibits a REALTOR from making an offer contingent on the listing broker paying a commission different than the amount indicated in the MLS, this section does not apply to negotiations between buyers and sellers. Therefore, a purchaser could negotiate for the seller to pay his broker’s fee just like he negotiates for payment of his closing costs.
13. Must the revocation of an offer be in writing?
Answer: No. A verbal revocation to the offeree or their agent prior to the offeree’s acceptance of the offer is sufficient to revoke the offer. However, it is best to also provide written notice of the revocation so it can be proved that the revocation was made.
14. Can a “back-up” buyer get out of a back-up contract at anytime if they find another property?
Answer: No. A back-up buyer is bound by the terms of the back-up contract. If the buyer wants the ability to terminate the contract if they find another home they would include this provision in the terms of the back-up contract.
15. If a seller rejects an offer to purchase must the seller indicate “rejected” on the face of the offer?
Answer: No. A seller can verbally reject an offer. However, it is best that the rejection is marked on the offer so there is no question that the offer was presented and that it was rejected.
16. Does Ohio law provide for a three-day “cooling off” period for real estate purchase contracts?
Answer: No. Ohio law does not provide a “cooling off” or right of rescission period for real estate purchase contracts.
17. Is an offer (or counteroffer) that is accepted not a binding contract until it is actually received by the other party?
Answer: Contract law does require delivery of an offer or counteroffer that has been accepted. While most REALTORS view this as requiring physical delivery of the signed contract, from a legal standpoint delivery occurs when a party–or their agent–is notified that their offer has been accepted. Actual physical receipt of the signed contract would only be necessary if the term’s of the contract itself required this.
18. A buyer made an offer which the sellers countered. The buyer told the listing agent he was rejecting this counteroffer. The next day the sellers received another offer and accepted it. The following day, the first buyer changed his mind, accepted the sellers’ counteroffer and delivered it to the listing agent. Is there a legally binding contract with the first buyer?
Answer: No. Once the first buyer rejected the sellers’ counteroffer and communicated that to the sellers’ agent, it could only be accepted if the sellers renewed their offer. Since the sellers did not renew their counteroffer to the buyer, it was no longer open for acceptance by the first buyer.
19. Is a buyer legally entitled to a “walk-through” before closing?
Answer: No. Ohio law does not provide the buyer with a legal right to a walk-through. If the buyer wants a walk-through prior to closing the buyer should include this in the terms of the purchase contract.
Contracts: Land Installment
1. Can unimproved real estate be sold by land contract?
Contracts: Multiple Offers
1. A listing agent describes an offer to an out-of-town seller over the telephone. The seller verbally indicates his acceptance of that offer, which the listing agent communicates to the buyer. Before the seller receives and signs the original offer, the listing agent receives another offer, which the seller wants to accept. Is there a binding contract with the first buyer?
Answer: No. Although the seller verbally accepted the first offer, under the Statute of Frauds there would not be a binding contract because the seller did not sign the offer. Therefore, the seller would be free to accept the second offer.
2. Negotiations have been going back and forth between a seller and a buyer for over a week. The seller is considering a counteroffer from this buyer, when another higher offer is received. Is the listing agent required to notify the first buyer that another offer has been received and give that buyer an opportunity to increase his counteroffer?
Answer: No, there is nothing that legally requires the seller to give the first buyer an opportunity to raise his offer. Of course, if the seller wishes to give the first buyer such a opportunity, he may do so, and the listing agent would have to follow these instructions.
3. A listing agent has received an offer which he is planning on presenting to the seller that afternoon. Before she makes this presentation she is notified by a cooperating agent that another buyer will probably be making an offer the next day. Should the listing agent wait until this second offer is received to present the first offer?
Answer: The listing agent must present the first offer she has received as soon as possible. Therefore, she should present the first offer that afternoon as planned. However, her fiduciary duties to the seller also require her to notify the seller that another offer may be forthcoming. It will then be up to the seller to decide whether he wants to wait for this offer. This listing agent should review the first offer to determine how long it is open for acceptance, so that it does not expire before the seller decides to accept or counter it.
4. A seller has received two offers to purchase his property. Can he make counteroffers to both buyers?
Answer: While he can do this, it is not recommended for the seller to make more than one counteroffer at a time. This is because both buyers could accept the counteroffer and deliver notice.
5. An offer is presented to the seller which is signed by the seller. The listing agent immediately calls the buyer and leaves a message on the buyer’s answering machine that the seller has accepted his offer. The buyer receives this message. Five minutes after the seller signed the offer, another offer is received which is higher than the signed offer. Can the seller accept the higher offer or is he bound to the contract he signed? The contract is silent regarding the method and delivery of acceptance.
Answer: The seller accepted the offer by signing the contract. To have a binding contract the seller’s acceptance must be communicated to the buyer. As the contract does not require that the communication be by physically returning the signed contract to the buyer, verbal notification to the buyer, would be sufficient. Therefore, the sellers have entered into a binding contract with the first buyer.
6. If I receive multiple offers on one of my listings, must I notify all of the agents/buyers that they are in a multiple offer situation?
Answer: There is nothing in the license law that requires such disclosure. Most agents do so because they believe it is the fair way to handle negotiations and that it could get the buyers to increase their offers. While this may be true, disclosing that there are multiple offers could result in one or more of the buyers withdrawing their offer because they don’t want to be in a “bidding war.” For this reason, Standard of Practice 1-15 of NAR’s Code of Ethics states the existence of other offers should only be disclosed with the seller’s consent.
Contracts: Buyer Brokerage
1. If I choose to represent a buyer in a transaction must I have a written buyer representation agreement with the buyers?
Answer: No. There is no legal requirement that the buyer broker agreement be in writing. However, it is recommended that the agreement be in writing so that there is no misunderstanding as to the agreed terms.
2. Does Ohio license law require any specific provisions in a written buyer broker agreement?
Answer: A written buyer broker agreement must contain a definite expiration date, the fair housing logo, fair housing language and a place for the buyer(s) to sign and date.