Q: Please resolve a dispute I have with my real estate agent. He says I need to post a money deposit in order to have a binding real estate contract, and I don’t agree. He also said the oral promise of my seller to leave the piano in the house is not binding. Is that correct? Pat.
A: Dear Pat: There is a very ancient legal concept called the “Statute of Frauds”. Oversimplified, and as it applies to real estate, this means in order to have a binding contract to purchase (or sell) real estate, there must be a written document. Oral contracts will usually not be enforced by the Courts.
In most jurisdictions in the United States, when a potential buyer makes a written offer to purchase a house, the seller has three options:
– the offer can be accepted, in which case there is a contract;
– the offer can be rejected, or
– the offer can be met with a counter-offer. This means that while the seller is interested in pursuing negotiations with the potential purchaser, there are terms in the offer which are not acceptable to the seller.
If a seller makes a counter-offer, the buyer then has the same three options.
Most real estate transactions are smooth, and work out successfully. However, once in a while, a major dispute arises between the parties, and litigation starts. The first thing any Court will want to determine is whether there is a valid contract.
In order to have a binding, legal contract, three basic elements are required:
- An offer: Typically, the buyer makes an offer. It has been determined by many courts that an advertisement in the local newspaper offering a house for sale at a particular price is not an offer – but merely an invitation for the public at large to make a bid (an offer) on the property.
- Acceptance: The second element needed to make a contract binding is acceptance. Ultimately, there will either be no deal, or someone will accept an offer (or a counteroffer) and there will be a contract. Acceptance must be in writing. However, in recent years, with modern technology, real estate forms have authorized acceptance by fax or by e-mail. However, to be on the safe side, any fax or e-mail should be followed up with a written document containing an original signature.
- Consideration: The third basic element of a contract is called “consideration”. This is an elusive concept. Generally, it refers to money. The buyers have put down a good faith earnest money deposit with the broker (or with their attorney) and this constitutes good consideration.
However, what happens if no money is put down with the offer? Does this mean there is no binding contract even if the seller signs the offer? Not really, since consideration also has been interpreted to be “something of value”. In this case, the buyer has stopped looking for another house, in the belief there is a binding real estate contract, and the seller has taken the house off the market, based on that same belief. Thus, there would still be a valid contract, although it is always wise to put down some money as the good faith earnest money deposit when you present an offer to purchase real estate.
The lesson to be learned: put everything in writing. If you as buyer want certain items to convey with the house – such as the washing machine, curtains, or even the piano – make sure these items are specifically listed in the sales contract. And conversely, if you as seller want to take certain fixtures with you, put that in writing in the real estate contract.
Don’t leave anything to faith – or to oral promises. I cannot guarantee you will get the piano.
A Letter from a Reader:
As a veteran refinancing a loan through my current lender, I thought it would be a relatively straightforward (and I knew already it was lengthy) process. I’d not missed a payment in 12 years, had a FICO of 800+, and sufficient assets and income for what I thought was an easy and efficient process & close.
However, I soon learned that my lender had a near impossible time in doing the simple task of simply transferring my RE tax escrow balance to the new loan. They also asked questions multiple times, and wanted immediate responses, with veiled threats the loan would not close on time, and I’d have to start the process over. The process seemed to go as planned for a few weeks, then in the last two weeks before close, they wanted information that should have been requested earlier in the process.
It was a nerve-racking experience. My advice is for any veteran to learn whether their loan officer actually has VA loan experience, even if with a different lender before starting the application process. I believe mine said he did, when he really didn’t know the fine points. Mason, U.S. Army 1969-71,
MY RESPONSE: Thanks, Mason, we all appreciate your service for our country, and you have given good advice. You were not complaining about the VA loan process, but only about the so-called “inexperienced” loan officer. From my experience, this problem is not limited to VA loans. There are a lot of loan officers who have not been given the proper training.