BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
SELLER JUST SIGNS THE COUNTER-OFFER – NOT THE OFFER
Q: I am a buyer’s agent and I submitted an offer to the listing agent on behalf of my buyer. We received back from the listing agent just a signed C.A.R. counter-offer form changing the purchase price, but we did not receive back the original offer form signed by seller. I had my buyer sign the counter-offer and delivered it back to the listing agent and opened escrow. The listing agent now is saying that we do not have a contract (they have a better offer, I think) because the seller never signed the original offer. Do we have a contract? What should I tell my buyer?
A: In general, yes, you do have a contract. Paragraph 1 of the C.A.R. Counter-Offer form contains the following language:
“The terms and conditions of the above-referenced document are accepted subject to the following: …”
This language incorporates the terms and conditions of the original offer. Thus, by signing the counter-offer, the seller is accepting the terms and conditions of the purchase contract except for those items listed in the counter-offer that change any of the original offer’s terms or conditions.
ARBITRATION AND LIQUIDATED DAMAGES: However, Paragraph 1A of the C.A.R. Counter-Offer states that any paragraph in the purchase agreement that requires initials by all parties, but is not initialed by all parties, is excluded from the final agreement (e.g., arbitration and liquidated damages). Thus, while there will be a binding contract, it may not include arbitration or liquidated damages.
(The PRDS Counter-Offer form has language similar to the CAR language.)
For example, if your buyer initialed the Arbitration and/or Liquidated Damages paragraphs, you do not know whether the seller initialed, or did not initial, either of those paragraphs.
PRACTICE TIPS:
BUYER’S AGENTS
1. Tell your buyer that, while as a broker, you believe that there is a binding contract, the seller may have a different interpretation. For this reason, you should recommend that your buyer consult with a good real estate attorney if the seller persists in claiming that there is no binding contract with your buyer.
2. Always ask the listing agent to return the signed offer along with any counter-offer. If your buyer initialed the Arbitration and/or Liquidated Damages paragraphs, check to see if they are initialed by seller on the original offer form when it is returned to you.
3. If your buyer did initial the Arbitration and/or Liquidated Damages paragraphs and seller did not initial them, and seller returned a Counter-Offer form, then, at that point, those clauses have been eliminated by virtue of the operation of the above pre-printed language in the Counter-Offer form.
4. If, at that point, your buyer still wants one or both of those clauses in the contract, you must issue a new Counter-Counter-Offer form stating something such as:
“Arbitration and Liquidated Damages, Paragraphs __ and __, are incorporated into this Purchase Agreement.”
LISTING AGENTS
1. Make it a habit to always have your seller sign the original offer form.
2. If the seller is going to issue a Counter-Offer, then
A. Be sure to check the box that the offer is signed subject to a Counter-Offer
(On PRDS Purchase Agreements, initial that provision.); and,
B. Return a copy of the signed original offer with the Counter-Offer.
3. If buyer has initialed the Arbitration and/or Liquidated Damages paragraphs, always discuss with your seller whether seller wants those paragraphs in or out of the contract.
4. If buyer has initialed the Arbitration and/or Liquidated Damages paragraphs, and if the seller wants the Arbitration and Liquidated Damages paragraphs IN the contract, have your seller initial those paragraphs.
5. If buyer has initialed the Arbitration and/or Liquidated Damages paragraphs, and if the seller wants the Arbitration and Liquidated Damages paragraphs OUT OF the contract, then you must issue a Counter-Offer to do so.
BOTH AGENTS
Always use Counter-Offer forms to create contracts. Never use Addendum forms unless attached to another document (Offer or Counter-Offer)
For further information, see Weekly Practice Tips:
“Use Counter-Offer Forms to Create Contracts”
“Liquidated Damages, Arbitration and Mediation”
“Liquidated Damages: Six Common Questions”
“Liquidated Damages: Who Gets the Deposit?”
DO NOT FORWARD THIS DOCUMENT TO CLIENTS. This Weekly Practice Tip is attorney-client privileged and 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. 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.
© Copyright Broker Risk Management 2008 09-05-08
