This session covers the writing, review, acceptance, and rejection of real estate offers — all from a risk management perspective. Use this ClaimPrevent® summary for onboarding new hires or as a refresher to help prevent legal problems.
As a real estate professional, you’re very familiar with all of the forms needed to submit an offer. But your clients are not as familiar; be sure to take the time with your buyers and sellers to ensure they understand all of the terms in the offer, they are comfortable with everything, and they understand all of the forms being completed and reviewed.
Email Disclaimers
Are emails binding as an offer and/or acceptance, even if the paperwork is unsigned? An email signature block, name, or email address in the “from” section of an email can be considered a valid signature if business is being conducted primarily by email.
Add a disclaimer to your email signature “emails sent and received shall not create a binding contract or acceptance of an offer until the written contract is signed by all parties.”
To prevent scammers from requesting wire transfers from your clients, include another disclaimer in your email signature that you “will never request funds via email. Please call me to verify any instructions if you do receive anything requesting money.”
“Love Letters” to the Sellers
Buyers may attempt to stand out by writing letters to the sellers. These letters may describe the buyers, their family, and why they would be perfect buyers for the listed property. Some buyers include photographs of their family. Love letters can be problematic because you get into Fair Housing issues.
- If a young couple writes, “we can imagine our children running down the hallways to celebrate Christmas,” you’ve got potential Fair Housing issues with age and religion.
Your state may not prohibit such letters written by a potential buyer to the seller. But in California, for example, the buyer’s agent must deliver such letters to the seller’s agent, and that agent must give them to his or her client.
A potential problem arises when these letters are delivered to and read by the seller of a property, and the writer doesn’t end up buying the property. When this happens, a claim for discrimination under Federal and state law based upon ethnicity, gender, religion, familial status, national origin, disability, sexual orientation, or any other protected areas under federal and state laws could be made.
Try and protect yourself from a discrimination lawsuit with a dated and signed disclosure kept in each brokerage’s transaction file, as follows:
Buyers’ brokerage and agent: The buyer’s agent and brokerage should have a written disclosure for buyer clients to be signed and dated and kept in the transaction file, stating that:
- Real estate “love letters” to the seller are not recommended, because they tend to distract from the goal of ending up with a valid contract by letting emotions become involved.
- The buyer client is advised to consult with an attorney on this issue.
Listing brokerage and agent: The listing agent and brokerage should have a written disclosure for seller clients to be signed and dated, stating:
- Real estate “love letters” to the seller client by a potential buyer will be sealed when submitted to the listing brokerage and agent and given to the seller client unopened.
- The seller client is advised to consult with an attorney on this issue, with the recommendation that the sealed letter not be opened until after closing.
Upon giving the sealed letter to the seller, a follow-up email should be sent, suggesting that the sealed letter not be opened until after closing. The listing agent should keep a dated and signed receipt for the seller’s acceptance of the sealed “love letter” in the transaction file.
Offers, Review, and Acceptance
Get all important information in writing. Otherwise, you could find yourself in a “he said”, “she said” situation in a court of law trying to argue that you acted appropriately.
All offers and acceptances, directions from your clients and other information, need to be in writing. If you happen to discuss something important with your client over the phone or via video chat, follow up by email with a recap of the conversation to ensure there’s a written record.
“The licensee has a duty to convey all offers to their client.” If you’re representing a seller, provide all offers to clients for consideration.
A real estate licensee should not advise buyers there is an offer or offers on a property without permission of your seller.
If you have numerous offers, you can tell your sellers about the offers and organize the primary terms of each offer in a spreadsheet. Then, discuss those offers in detail. The key factor is the seller has to review the primary terms, i.e., the significant terms of each offer.
Be careful about setting a deadline for offers. If somebody submits an offer on Monday, and they want a response deadline by Tuesday, but you plan to review all offers after your Thursday deadline, what happens? You have to look at the offer, because you can’t just let the response deadline go.
You need to put it in the agent remarks: “We are looking at offers Thursday morning. Please make sure that your acceptance deadline is Thursday at noon” or something similar. So, you have to present all offers regardless of when they come in. You can’t say to anybody, “It’s too late, I’m not passing this offer along.” You have to convey all offers.
The listing agent should advise the sellers they can accept any offer they want — as long as the sellers do not discriminate based on protected classes:
- Race, color, national origin, religion, sex, age, or disability.
Real estate licensees also need to be careful about a conflict of interest when there are multiple offers. If a friend or family member has submitted an offer, the licensee should disclose this to the sellers.
The licensee should suggest that the sellers speak with an attorney if they have concerns about the legality of accepting or rejecting any particular offer.
Should your seller have a concern about accepting a particular offer, document in your file your understanding of the situation. For example, that the sellers’ concern in accepting the offer is about a criminal conviction only. In addition, document that you advised the sellers of the option to speak with an attorney.
The buyer’s agent is required to disclose material facts related to the sale, such as:
- The buyer’s financial ability to complete the transaction
- The fact that the buyer doesn’t intend to occupy a property purchased as a principal residence
- Other facts actually known by the broker
The buyer’s agent is not required to research their clients’ backgrounds, nor do they have to verify whether what the buyer says is accurate or complete.
In addition, the buyer’s agent cannot disclose anything about the buyer unless it is required by law or if failure to disclose would be fraudulent or dishonest (for example, if there is a conviction for pedophilia, which requires disclosure.)
Unrepresented Buyers
If you are a listing agent approached by an unrepresented buyer, the best practice is to advise the buyer you can recommend a particular real estate licensee in your office to represent them. If you choose to provide a form for them to make an offer, or help them in any other way, you are essentially representing them under dual agency. And you need a Buyer-Broker Agreement so they understand how your commission on the buyer side will be paid. But remember the legal dangers of dual agency: you cannot effectively represent both parties that inherently have competing interests.
Buyers For Whom English is Not Their First Language
You may want to ask the client if he or she has a trusted family member or friend who can go over the documents with you and the client. See Dealing with Real Estate Buyers for Whom English is Not Their First Language.
The National Association of REALTORS® (NAR) suggests — if you’re using an interpreter or translator — you should have a formal agreement in place with them. They also recommend including a disclaimer clause in the real estate contract to protect against any incorrect translations.
Escalation Clause
An escalation clause is a tactic to submit a best and final offer upfront. You let the seller know “my offer is X, however, if you receive a bona fide higher offer, I’m willing to increase my offer by $X up to a certain point” or it can just be open-ended.
Try to avoid adding this type of escalation clause in an additional term section of the offer — a form that you attach to the main purchase agreement is more appropriate.
You want clear communication between the buyer and the buyer’s agent. The buyers need to fully understand what they’re doing and the consequences. The buyers may offer to pay up to $10,000 more than the purchase price and still not get the property, because somebody else may have an escalation addendum as well.
If the buyers don’t put a cap on it, they don’t control the purchase price — and they need to be aware of the consequences. So, a form that both seller and the buyer sign is a better option.
A separate form also allows the seller to accept your offer but reject your escalation addendum. The escalation addendum would have to be triggered by the buyer, or the seller would have to give you the offer that triggers that addendum.
The form is a good idea if you’re representing sellers in that situation, particularly where there are not only multiple offers, but multiple offers with multiple escalation addendums.
- You can then say, “we’ve got a multiple escalation addendums situation. We’re rejecting all of them.”
- Or, the seller could actually say, “I’m rejecting your escalation addendum, however, I’m countering your offer at this purchase price.”
That’s hard to do if you’ve just got all of that — or a little sentence — in the additional term section. If you’ve got a whole separate addendum form, it’s much easier for everybody to walk through it and say, “we’re triggering this, we’re not triggering this.”
As a licensee, your broker needs to be aware of when you’re using an escalation addendum with a buyer:
- “This is the property. This is the list price. This is what we want.” Your starting point is that you’re submitting an offer that already has a purchase price. The only reason you’re even using this addendum is this property isn’t going to sell for a fair, reasonable price.
- “If we do this escalation addendum, I think it may give us an advantage that may work.”
However, it’s best to take the time to work with legal counsel and develop a good escalation addendum form.
Avoid Seller Contingencies
When sellers in a tight market want to sell their property, they usually want to have a property to move to. You don’t want to have a circumstance where the sellers can’t find a property, but then are locked in to selling their home. Nearly 100% of the time, that’s when sellers sue their listing agents saying, “what’d you get me into?”
- Try to prevent the problem by addressing it at the very beginning when the listing is taken. Don’t list the property for sale until the seller is 100% sure that they can go through with it, they’re ready to sell, and they can be out. If a 10-day cash close is common in the current market and your seller says, “I can’t be out for 30 days,” then don’t list it until they’re ready to sell.
- Don’t accept or write seller’s contingencies from either side. When the seller receives an offer, don’t have your sellers counter with some kind of contingency.
- If the problem does arise, notify all parties as soon as possible. Maybe the sellers’ situation has changed. Notify everyone that, “Hey, you might have a problem here.”
- Try to resolve it.
Talk to everybody and see what can be worked out. Can we delay the closing? Can we do a rent-back? Can we cancel, give you your earnest money back, and pay for your inspections and other costs the buyer has already incurred?
The seller should be coming to the buyer with, “I am so sorry, but this is my current situation.”
Create agreed-upon cancellation instructions and make sure the transaction is completely resolved before the seller tries to enter into a new listing agreement with anybody.
Multiple Counter Offers and Valid Contracts
If you’re countering multiple offers, be sure the multiple counter box is checked (to avoid two acceptances.)
In California, the three essential terms that must be in a contract for it to be enforceable are: the identity of the property, the identity of the principals, and the purchase price. And all of the terms of the contract are contained within the four corners of the document. That means you can’t look outside the contract to figure anything else out.
Licensees should make a clear counter with an actual number (rather than say, “reply with your highest and best”), and then see where it goes. If you counter at a certain number, and you get multiple acceptances, you can always call them back up and say, “I’ve got multiple counters at my counter price, so let’s do it again.”
California also has a mirror image rule when it comes to contract formation. That means that the acceptance has to be a mirror image of the offer. So, if I have an offer that comes in, the seller might like everything about the offer except that buyer wants 45 days and the seller wants 30 days. If I cross out the 45 and change it to 30 days, that actually constitutes a counter that requires separate acceptance.
Even for a minor change in terms, where you might say, “Oh, well just change it and initial it,” it actually requires separate acceptance.
Avoiding the Acceptance of Multiple Offers
One of the more common E&O claims is where a seller accepts multiple offers. With online signing software, sellers start clicking and placing their electronic signature on these contracts. When they hit send, they’ve accepted multiple offers to sell the same home. Frequently, they blame their real estate broker for not explaining exactly what they’re getting — and instructing them not to sign anything.
- Rather than forward each offer to the sellers, consider putting together a spreadsheet to summarize the contracts.
- Or provide the offers in PDF format to ensure your seller cannot accept multiple offers.
When you do have this situation with two or more buyers for the same property who each claim they have a valid and enforceable contract, frequently one buyer is paid not to buy the property.
Anytime multiple offers are received, the broker should advise the seller that multiple offers have been received and the offers will be presented and discussed. The seller should be instructed not to sign anything regarding the offers until talking with the seller’s agent.
Rejecting Offers (including multiple offers)
Nevada requires that offers be rejected in writing. The most appropriate thing is to have your client sign on every single offer, initial every page of the offer, and return the entire offer.
Avoid just signing the final page of the contract and sending just the final page back where it says “rejected.”
Never return part of a contract; either return the whole thing or don’t return the whole thing. You never want to have to tell the Real Estate Commission, a judge, or a jury,” I didn’t have time to do it right.”
If you’re buried in offers, though, you can consider other options.
- You can use just a one-sheet rejection form for every offer, and have your client sign the statement for each offer: “I seller have reviewed the offer that was submitted by (name) on (date) and I hearby reject it.”
- Next best scenario would be creating an email, “I’m accepting this offer and hereby rejecting all other offers” and then seller is signing it. That satisfies the Nevada written requirement. You’ve got documentation that the seller gave you in writing a rejection of all other offers, and you’re sending an email to everybody saying, “Your offer has been rejected.”
See also How to Reject Real Estate Offers Safely.
CRES has turned out to be more of a partner in our real estate business than just our E&O insurance company. When we anticipate that there may be a problem, we give them a call, and they’re quick to respond on how to proceed. Responsive, friendly customer service, risk management classes for agents, and home warranty programs for Sellers, CRES understands the real estate business.
– Kathy Z. – Naples, FL
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Plus, all CRES E&O + ClaimPrevent® policies include Pre-Claim Legal Services to help you address any Risk Management questions you may have.
Check out our other summaries of key risk management topics:
ClaimPrevent® Summary 1: Attracting New Clients and Showing Property
ClaimPrevent® Summary 2: Real Estate Licensee Responsibilities When Creating New Listings
ClaimPrevent ®Summary 3: Seller Disclosures and Working New Listings
ClaimPrevent® Summary 5: Filling Out the Purchase and Sale Agreement to Avoid Problems
ClaimPrevent® Summary 6: Handling Challenges with Clients and Other Licensees
ClaimPrevent® Summary 7: Avoiding Legal Trouble when Working a Real Estate Contract
ClaimPrevent® Summary 8: Property Management Ads and Screening of Applicants
ClaimPrevent® Summary 9: Property Management Evictions and Maintenance
