Contract Myths and Multiple Offers

(October 1991) Houston REALTOR© Network by Dick Hargis, HAR Legal Counsel, McGettigan, Gill & HargisMultiple offers to purchase real property often create confusion among the seller, the prospective purchasers and the brokers. The confusion stems largely from several commonly-held myths by buyers concerning the law of contracts. Fortunately, midland texas real estate brokers are well-positioned to help dispel such contract myths among buyers and at the same time, fulfill their duty under the law to treat buyers fairly. The proper handling of multiple offers by brokers will achieve both objectives. Let’s review these myths about contract law within the context of offers generally, and multiple offers specifically.

Myth No 1

Seller must respond–The seller has a legal duty to respond to the buyer’s offer to purchase. False.

No such legal duty exists under Texas law.  A seller may simply choose to ignore an offer or toss it in the wastebasket. That is to say, the seller does not have to respond in any manner to an offer to purchase. However, common courtesy as well as the seller’s- motivation to become involved in the sales process usually results in the seller making some kind of verbal or written response to the buyer’s offer, such as: Rejected; No way; You gotta be kiddin’. On the other hand, the seller may choose to respond to the buyer’s offer by way of a counter-offer or by the procedure commonly described as ‘an indication of seller’s willingness to negotiate’ furthermore–the latter being a cordial way of saying, “offer rejected please try again.” Regrettably, the counteroffer, has become an all too extinct tool of contract negotiations. A counter-offer is made when the seller takes the buyers written offer, makes certain changes to the offer (e.g.…to price and/or other terms) AND SIGNS THE CONTRACT FORM. In doing so, the seller agrees to be bound by the terms of the counter-offer, provided the buyer consents to the same. Buyer’s consent is evidenced by his or her initialing the seller’s changes. There is no need for the buyer to sign the contract form as the buyer’s signature is already there. One last thought. Now that buyers know the seller has no duty to respond to the buyers’ offer, the buyer will want to avoid the offer becoming a “continuing offer.” Remember, an offer remains valid until accepted, rejected, withdrawn, unless otherwise specified. Thus, to avoid making a continuing offer, the buyer will want to include a “time fuseprovision under which the offer self-destructs unless accepted by the seller within the allotted time. There is nothing worse than finding out your month old offer to buy the house on Elm Street was just accepted by the seller, when you had long ago forgotten about Elm Street.

Myth No 2

One offer at a time – No other offer or offers can be considered by the seller once my offer is made. False.

A seller is free to consider any and all offers until an offer to purchase is accepted. Moreover, the Code of Ethics requires Realtors© to promptly submit all offers to the seller until an offer is accepted. However, once the seller accepts an offer, a Realtor© has no duty to submit offers unless the earnest money contract specifies otherwise.  This is a very important point which brokers should discuss with their sellers once the seller decides to execute an earnest money contract. If the seller wants the broker to continue to submit back-up offers during the pendency of the contract, then a provision should be added to the contract to this effect. Otherwise, the broker should not submit subsequent offers.

Myth No 3

First offer first. If my offer is the first of multiple offers; the seller must respond to my offer first. False

A seller has no duty to respond to multiple offers in any particular order or sequence. First, we already know that the seller has no duty to respond to an offer at all: Therefore, there is certainly no requirement for the seller to respond to multiple offers in any particular order. A seller may choose to ignore the first and second offer in time and immediately accept the third offer. In short, there is no “first-in-time first-in-response” rule.  Buyers should be made aware of this when making an offer on a “hot” property where other offers are under consideration by the seller or are known to exist. Simultaneous Multiple offers Simultaneous multiple offers (or offers made roughly during the same time period) present unique problems for the listing broker and their subagents assisting the competing buyers. The test of whether such buyers are treated fairly by the brokers turns on each buyer’s perception of the method and manner in which their offer was presented. Nothing makes a buyer unhappier than to think that his or her offer was not presented fairly or effectively. A good practice for handling offers made simultaneously (or around the same time) suggests the listing broker invite each subagent to accompany the listing agent in presenting the offer to the seller. Each offer should be presented separately.  Thereafter, the seller and listing agent can discuss the merits of each offer and decide what, if any, response the seller wishes to communicate to the buyers. The beauty of this approach is two-fold. First, the seller is provided first-hand information about the buyers and their offers, respectively. Second, each buyer will perceive that their offer was given due attention and fair consideration in relation to the other offer. This practice is particularly effective and thwarts ill-will when one of the multiple offers has been procured by an agent associated with the listing firm.