Q: I am the Buyer’s Agent. I emailed a $1.5 million Offer to the Listing Agent. The Offer provided for 10% down, an 80% first and a 10% second loan. The Purchase Agreement form came back with a wet signature by Seller (it was not signed electronically) with no Counter Offer, but the price had been stricken and a new price of $1.55 was written into the margin in both places where the price was referenced. No changes were made to the amounts for the initial deposit or the two loans. In the “Other Terms,” we had written: “Seller shall credit buyer $9,000 for non-recurring closing costs.” That was also crossed out. There were no initials or dates next to any of the changes. My Buyer was worried that the Seller might receive another offer, so he just initialed the price changes, and we returned the Purchase Agreement to the Listing Agent.
My Buyer has informed me that he barely has the $150,000 for the original initial down payment and he may not be able to raise 10% of the higher purchase price within three business days; he blames me for not clarifying the amount of the deposit for him before he initialed the changed purchase price. While we were discussing the Buyer’s options, the Seller called me alleging that the changes on the Offer were made by his Listing Agent after the Seller had signed the form; the Seller also claims that he had instructed his Agent to make the purchase price $1.575, not $1.55 but neither of them noticed that the number “7” was left out because the Agent’s printing was so small. The Seller said that from his perspective there is no agreement because of his Agent’s mistake.
What is the status of this Agreement? Is the initial deposit still 10% of the purchase price? What should I tell the Buyer who believes he still has a contract but does not want to pay the Seller’s latest price increase and he definitely wants the $9,000 credit?
A: At this point, the only thing that you can recommend to the Buyer is that he should consult with his own qualified California real estate attorney. You should also immediately notify your Broker since the Buyer may have a claim against you for not properly handling the contract documents.
Even though most contract documents are prepared electronically, we continue to see Agents making modifications to Offer, Counter Offer, Amendment and Addendum forms that are printed up for one or more of the Parties to sign.
As this situation illustrates, there are perils if Agents or their principals alter contract terms with strike-outs and/or insertions (which are legally referred to as “interlineations”) rather than using proper Counter Offer forms. It is not clear that there ever was an agreement on the price, the amount of the down payment or the amount of the two loans. There is also no indication in your summary of the facts as to whether or not the Liquidated Damages and Arbitration provisions were consistently initialed (or not initialed) by all Parties.
The attorneys for one or both of the Parties will probably allege that there never was a “meeting of the minds” as to what financial terms were and were not included and therefore there is no contract. Since the Buyer did not initial the change to the requested Seller credit, that fact alone may be sufficient to argue that there was no contract.
Even if the Seller prevails in claiming that no contract was formed, the Listing Agent may face liability for breach of fiduciary duty in creating the dispute in the first place by altering the document, rather than using a Counter Offer form and, if it is true that the Listing Agent wrote down the wrong price after the Seller signed the document, then that Agent may have additional liability, including, but not limited to, a possible DRE license action.
PRACTICE TIPS:
- When you are in the process of negotiating a Purchase Agreement or making changes to any document, do not try to save time or paper by striking out existing terms or inserting different terms on a document after any of the Parties have signed the document. It becomes too confusing as to who did what and when; it is too easy to miss something if there are changes on several pages and there could be allegations of fraud that could lead to license suspension or revocation.
- Always use Counter Offer forms during the contract formation stage if your client wants to make any changes, no matter how slight, to the terms proposed by the other Party.
- You can attach an Addendum form to the original Offer, or to a Counter Offer; however, do not use an Addendum form instead of using a Counter Offer. It is effectively a counter, but the standard Addendum forms do not have a built-in expiration date so it becomes an open-ended proposal.
- If you receive a document that has strike-outs or written additions penned or typed onto an original Offer or Counter Offer, those modifications should be treated as a Counter Offer. The best approach is to prepare a Counter Offer to that document specifically addressing each of the items that have been changed and whether or not your client wants any or all of those terms included in the transaction. That process will make it clear what the Parties are actually agreeing to in their Contract. It is not sufficient to merely obtain initials next to the changes.
- Do not let the laziness of another Agent drag you into a possible contract dispute.
- Do not let a client’s stated fear of losing a deal change your best practices. Your fiduciary duty is to fully protect all of your client’s interests including making sure that your client has a legally-enforceable contract – you need to use the right forms.
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.
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