Offers are a kind of promise or, if you like lawyer talk, a manifestation of willingness to enter into a bargain. The offer must be made in a way that would justify the other party believing that assent to the bargain is invited and will conclude the bargain. An offer, it is said, empowers the offeree to create a contract by acceptance. An unambiguous offer, therefore, commits the offeror to the bargain they propose subject only to the offeree’s acceptance.
There are, of course, a million ways to make ambiguous offers and, therefore, call into question contract formation. If a doctor says to a patient, “don’t worry, I can fix that,” can the patient sue the doctor for breach of contract if it turns out the doctor couldn’t fix it after all? The answer depends on not just the words used by the doctor, but the context in which they were used. Would the patient be justified in believing their assent to a bargain was invited and that their assent would conclude the bargain? In the context of an interaction between a doctor and a patient, few would believe a bargain was being proposed. If there was no offer, there was no contract and, therefore, no subsequent breach.
In real estate we rarely worry about manifesting willingness to enter into a bargain. That’s all handled by our forms. If you look again at the sale agreement or “earnest money” form you use, you will see express offer and acceptance language. The use of such forms removes doubt about whether an offer is being made. Unfortunately, the parties to a real estate transaction sometimes talk directly with each other and can sometimes make statements that could be taken as an offer.
Suppose a man says to his neighbor, “I’d sell my house if I thought I could get $300,000,” and the neighbor says, “Ok, I’ll have the $300,000 in the morning, you’ve got a deal.” Does the man have to sell his house to his neighbor? What if the owner received a letter from the neighbor saying, “Will you sell me your house for $250,000?” The owner writes back saying, “I wouldn’t even consider selling my house for less than $300,000” and the neighbor writes back: “I accept?” Can the neighbor now force the sale?
In these kinds of cases, courts usually find no offer was made because these are statements of future intentions, hopes or estimates, not promises. But, when parties start communicating, especially in writing, about what price or what terms might be acceptable, watch out. What a court might later make of these communications is not always predictable. Click here for a copy of an Oregon Supreme Court case discussing the legal requirements for an offer to purchase or sell real property.
Because of the unintended offer potential, any written communication discussing the terms or conditions of a sale, that is not intended as an offer, should say right in the document that it is not an offer. The same applies to verbal discussions of price and terms but in a verbal exchange there is the added protection of the Statute of Frauds. It is, however, very unwise to rely solely on the Statute of Frauds. Click here for a detailed discussion of the Oregon Statute of Frauds.
One place where being clear about what is and isn’t an offer can be critical is in multiple offer situations. A seller with multiple offers to consider may want to make counter offers to more than one buyer. Because a true counter offer, like any unambiguous offer, will create the power of acceptance in the offeree, extreme care must be used to avoid creating more than one contract. Various strategies and forms have been developed to deal with multiple offers. Be certain you understand these strategies and forms before countering more than one buyer. Click here a detailed discussion of multiple offers, including sample language.
Another place where clarity is required in offers is where preliminary negotiations are followed by the execution of a separate formal document of agreement. The preliminary negotiation problem plagued real estate for years after the invention of the fax machine. In the early days of fax transactions, there was concern that copies of offers faxed back and forth might not be formal enough to indicate the parties’ intent to enter into a contract because no single written memorial of the agreement existed. To compensate for this concern, brokers for years sent around the “original” offer to get “original” signatures after everyone had agreed to the deal by fax.
This manner of doing business created uncertainty in the formation of real estate contracts because either party could argue that no contract was intended until the “original” was signed. Otherwise, what purpose was served by sending around the original?
To solve the problem, a “multiple counterparts” clause was added to real estate contracts saying the documents could be signed in multiple counter parts with the same effects as signing one document. Such clauses are now obsolete because of state and federal electronic transaction legislation but you will still see them in real estate contracts today.
An offer, however signed, can offer a unilateral contract or a bilateral contract. Both types are used in the practice of real estate. The cooperation agreement between brokers formed through a multiple listing service is formed on the basis of a unilateral offer of compensation. The listing broker promises to pay a coop commission to any broker who procures a buyer for the broker’s listing. The offer is unilateral because only the listing broker makes a promise.
A cooperating broker cannot accept the unilateral offer by promising to procure a buyer, they must actually procure one. Unilateral offers are accepted by performance, not promise. That means the cooperating brokers are under no obligation to procure a buyer and the listing broker, though bound by their promise, can withdraw their offer at any time prior to the other broker’s actual performance. Click here for a detailed discussion of offers of compensation. This manner of contracting is very different from the way buyers and seller deal with each other.
Bilateral contracts, like a sale agreement between a buyer and a seller, involve the exchange of promises. An exchange of promises is sufficient consideration for a bilateral contract and no other consideration in the form of money or property is necessary. Click here for a detailed discussion of the role of earnest money in real estate contracts. Because bilateral contracts are binding without additional consideration, an offer of a bilateral contract creates in the offeree the power to bind the offeror by giving nothing more than a promise. This places special emphasis on the acceptance, revocation and performance of bilateral contracts. Acceptance is the next subject in this topic.
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