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EVALUATION OF A CONTRACT NEGOTIATION AND WHETHER A CONTRACT WAS CONSUMMATED

by | Dec 6, 2024 | Uncategorized

BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP

The following is an interesting fact pattern, which Broker Risk Management (“BRM”) recently analyzed to assist our client in determining whether a property was sold twice.  Consider the following fact pattern, evaluation, and recommendations.  BRM represented the listing agent in this transaction.

  1. October 1, 2024, seller receives an offer from Buyer No. 1 at 3:00 p.m. which expired at 5:00 p.m. on October 1, 2024.
  2. Seller does not respond to Buyer No. 1’s offer before the expiration date.
  3. On October 2, 2024, Seller receives two additional offers and issues three multiple counteroffers to Buyers Nos. 1, 2, and 3.  The multiple counteroffers expired at 5:00 p.m. on October 3, 2024.
  4. Buyer No. 1 accepted the counteroffer on October 3, 2024, before the expiration date. Buyers Nos. 2 and 3 did not respond.
  5. Seller did not sign the multiple counteroffer accepted by Buyer No. 1, which was required pursuant to Paragraphs 6 and 8 of the SMCO.
  6. Seller did not sign the multiple counteroffer accepted by Buyer No. 1, which was required pursuant to Paragraphs 6 and 8 of the SMCO.
  7. Buyer No. 1 signs the addendum on October 5, 2024 and returns it to the listing agent.
  8. Seller receives a fourth offer to purchase the property and accepts that offer.

Who is entitled to purchase the property?  Why?

Answer:  Buyer No. 4 is the proper purchaser and entitled to purchase the property.

DISCUSSION:  Buyer No. 1’s initial offer expired by its own terms and therefore, as of October 1, there was no contract.

The seller’s multiple counteroffer issued to Buyer No. 1 was never effective nor did it create a contract between the seller and Buyer No. 1, because the seller did not countersign or acknowledge it pursuant to Paragraphs 6 and 8, which require that a seller confirm the acceptance in a multiple counteroffer situation.  (See Paragraphs 6 and 8 of SMCO).

A contract was not consummated between Buyer No. 1 and the seller when the buyer signed addendum No. 1, because the buyer signed it after the expiration date.  The offer was also not binding on the seller, because the addendum contained an expiration date, which passed before buyer No. 1 accepted it.

As of the acceptance of Buyer No. 4’s offer, Buyer No. 1 and the seller did not have a binding contract.

RESULT:  Buyer No. 1 asserted a claim against the seller, claiming that Buyer No. 1 was entitled to the property.  The matter proceeded to mediation and amicably resolved.  However, the following were identified as mistakes made by the listing agent.

The agent should not have had the seller sign the original Residential Purchase Agreement and return it to the buyers.  A clearer way of handling the transaction would have been for the sellers to have accepted the multiple counteroffer after it was signed by buyer and returned to listing agent.  By signing the RPA without any explanation and with the addendum, the buyers believed that they had a contract with the seller.  Better communication between the listing agent and the buyer’s agent would have prevented the dispute.

During this entire transaction, the listing agent never sought the assistance of the agent’s manager.  The situation could have been avoided had a manager stepped in and addressed it.

PRACTICE TIPS:  

  1. In a multiple offer situation, agents need to pay close attention to the expiration dates of offers, counteroffers, and addenda.
  2. In handling confusing transactions with multiple offers, agents are encouraged to consult with their managers to ensure there is a clear record of the transactions.
  3. A multiple counteroffer is not effective until acknowledged by the seller. This is not the case with a counteroffer which is not a multiple counteroffer.
  4. If an agent is seeking to revive a contract offer or counteroffer after its expiration, an addendum or counteroffer should be attached specifically stating that the parties agree to all of the terms of the Residential Purchase Agreement (a party can specify exceptions or changes) and add a new expiration date. Please remember that when doing so, the party is initiating a new offer.
  5. Note however that with the December 2024 forms release CAR has now amended the three counteroffer forms (SCO, SMCO and BCO) to address this issue.

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.