BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
It is general knowledge amongst real estate licensees that all real estate Purchase Agreements in California must be in writing. But what if the real estate agents representing the seller and buyer engage in negotiations by email and/or texts?
The following scenario points out the problems that are created when the agents for the parties attempt to negotiate a purchase agreement utilizing emails and texts rather than by offers and counteroffers.
Facts of the Transaction
A real estate agent representing a buyer emailed the seller’s agent an offer to purchase a home for $3.1 million. The offer was sent on a standard CAR Purchase Agreement form. The seller’s agent responded by email that the seller would accept $3.4 million. Shortly thereafter, the buyer’s agent responded, again by email, that the buyer would pay $3.4 million and all other terms and conditions of the offer remain the same. The buyer’s agent also asked for a “quick cash close” and that the seller sign the original offer with a counteroffer and that the buyer would sign it.
In response to the buyer’s agent’s email, the seller’s agent stated by text message that the seller accepted the $3.4 million offer and asked for a later close of escrow date. The buyer’s agent texted back and confirmed that a later close was acceptable for the buyer. Several days later, the seller’s agent emailed the buyer’s agent, thanking the buyer and reiterating that the seller had accepted the $3.4 million deal and confirming the exact close of escrow date.
Notwithstanding the foregoing, a few days later, the seller’s agent emailed the buyer’s agent and said that the seller had accepted a different offer. Buyer No. 1 is now asserting a claim to the property.
Based on the above facts, is Buyer No. 1 entitled to purchase the property?
Answer: No. There are two problems with the agents’ handling of this situation.
- In the State of California, agents cannot bind their clients to contracts. Contracts to purchase and sell real estate are only enforceable if signed by the buyer or the seller. The authority issued to agents pursuant to the agency relationship between agents and their principals (buyer or seller) does not extend to changing material terms of the contract, including the formation of the contract, close of escrow date, or any other terms of the agreement. Therefore, the communications by and between the agents did not form a binding contract.
- Do the emails and texts meet the Statute of Frauds. In California, all contracts for the purchase and sale of real estate must be in writing and signed by the parties. It is questionable whether emails containing only price and close of escrow date are enforceable. However, an argument could be made that all other terms set forth in the original offer are contained within the agreement. Therefore, it is possible that a court could find that the agreement met the Statute of Frauds.
Note: The CAR RPA, and other CAR purchase agreement forms, contain the following definition of “acceptance”:
“Acceptance means the time the offer or final counteroffer is fully executed, in writing, by the recipient Party and is Delivered to the other Party or that Party’s Authorized Agent.”
PRACTICE TIPS
- Do not attempt to enter a purchase and sale agreement on behalf of your client. Negotiating by email and texts is common practice, but do not assume that a binding contract is being reached. It is important that agents follow up with a properly executed purchase agreement and counteroffers.
- Do not assume that texts and emails can form the basis of an enforceable contract pursuant to the Statute of Frauds. It is important that a properly completed purchase agreement be executed by the parties.
- As a seller’s agent, when seller has agreed to accept a buyer’s offer do not, in an abundance of enthusiasm, immediately call, text or email that buyer’s agent “Congratulations, seller has accepted your offer.” The buyer and their agent now believe that they have an accepted contract. But, often before the signed offer can be delivered to the buyer’s agent, another better offer comes in and the seller accepts that second offer. The first buyer, believing that they have a binding contract, may claim they have an accepted offer and hire an attorney to press their claim.
Instead, the best practice for seller’s agents in this scenario is to curb your enthusiasm and not call, text, or email anything, except to deliver the signed offer to the buyer’s agent.
- When emailing and texting the other party’s agent on any matters related to the transaction, please ensure those emails and texts are saved in the broker file. The Department of Real Estate requires all emails and texts, which substantively relate to a real estate transaction, whether sale or lease, be maintained in the broker’s file for a period of no less than three years. When DRE auditors and investigators look into Broker files, they look for whether those emails and texts are in that file.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management LLP. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.