When is an offer on a house a contract?
By Harvey S. Jacobs,
Dear House Lawyer: My wife and I are in the process of buying our first home. On a Monday, our licensed real estate agent prepared our offer using the local standard residential real estate contract. We completed all of the blanks, initialed where indicated, signed all documents and delivered the offer, along with our $10,000 earnest money deposit check, to our agent. He delivered the offer to seller’s real estate agent in person. The list price for the home was $400,000. Our offer was for $350,000. On Wednesday, the seller’s agent e-mailed the seller’s signed counteroffer agreeing to sell the home to us but changed the price to $375,000 and inserted a clause stating that the home gym equipment would not be included.
On Thursday, our agent texted the seller’s agent to say that we agreed to a price of $375,000 if it included the gym equipment, or $365,000 excluding the equipment. Our text also said that we needed seller’s answer by noon Friday, otherwise the deal was off and we were going to look at other homes over the weekend. We never heard back from the seller before noon Friday. Upon looking at the available inventory of homes, my wife and I had a change of heart and decided to accept seller’s offer of $375,000 excluding the gym.
We signed the seller’s counteroffer and delivered it to the seller’s agent via e-mail at 5 p.m. Friday. On Monday morning, we heard from the seller’s agent that the seller had sold the home to another buyer over the weekend. We thought that because we had a fully signed agreement, we had a legally enforceable contract. The seller said that we never had a contract and that he was free to sell the home to another buyer. We were shocked.
Dear shocked home buyer: Contract law, especially the concept of “offer and acceptance,” can be a tricky area. To be legally enforceable, a real estate contract must contain the following elements: There must be a valid offer. That offer must be accepted in accordance with its terms. All parties must have the capacity to enter into that contract. The parties must exchange something of value known as “consideration.” The contract must have a legal purpose. The contract must be in writing and signed by all parties.
All contracts start with an offer. An offer must be clear, definite, explicit and leave nothing open for negotiation. There must be a communicated “meeting of the minds” as to all salient terms and conditions in the offer, and the offer must be accepted on those terms and conditions. Both buyers and sellers can make offers. Typically, real estate offers are made by buyers and communicated through real estate agents to the seller.
The seller has three possible responses to an offer. First, he can accept the offer. At that point, the parties have entered into a contract. Second, he can reject the offer, which ends the negotiation. Third, he can make a counteroffer. By communicating a counteroffer, the seller has legally rejected the buyer’s original offer and made a new offer, which, if accepted by the buyer, will result in a contract. This back and forth may continue until one party accepts an offer and thus a contract is formed, or one party rejects an offer without making a counteroffer offer, at which point the negotiations are at an end.
Once an offer is either rejected outright or by way of a counteroffer, it may never be later revived or accepted. It would appear that when you made your Thursday counteroffer to pay $365,000 without the gym or $375,000 with the gym and placing a deadline on your offer, you rejected the seller’s offer. Once that offer was rejected, you could no longer revive or accept it at a later time. It was “off the table.” The seller was free to sell the home to whomever he wished.
To be enforceable, a real estate contract cannot be for an illegal purpose or against public policy. For example, if a buyer contracts with a seller to buy a house expressly to be used as a brothel and later breaches that contract, the courts will not enforce that contract since it was for an illegal purpose.
The legal doctrine known as the statute of frauds requires all real estate purchase contracts to be in writing. This ancient doctrine was created to prevent parties from making or relying on verbal statements that contradict the written agreements. If you want to enforce it, put it in writing.
Finally, all real estate contracts must be signed by all parties to the agreement. But in this high–tech era, what constitutes a signature? Fortunately, most local legislatures have adopted statutes that provide that facsimile, electronic or digital signatures have the same force and effect as an original, handwritten signature.
Harvey S. Jacobs is a partner in the Rockville law firm of Joseph, Greenwald & Laake, P.A. He is an active real estate investor, developer, landlord, settlement lawyer and lender. This column is not legal advice and should not be acted upon until legal counsel has been consulted. Jacobs can be reached at firstname.lastname@example.org.