Contract Formation and Agency in the Digital Age

Most brokers and agents know that a contract for the sale of real estate generally must be in writing to be enforceable, and signed by the party against whom enforcement is sought. This is what lawyers call the “statute of frauds” requirement, and is designed to avoid, well fraud, in transactions involving real estate.

Complicating matters in the Digital Age are questions such as “What qualifies as a writing?” Can an email from the Seller constitute an acceptance of an offer? What about an email from the Seller’s agent? The answer to all these questions is “yes,” but it depends on the circumstances.

First, Brokers and agents need to be aware that emails are a “writing” that can satisfy the statute of frauds. So, if a Buyer makes an offer and the Seller or the Seller’s agent transmits a counterproposal that changes only the price and the Buyer or the Buyer’s agent accepts the counterproposal with no changes, a binding contract likely has just been formed – even without traditional “wet ink” signatures.

Second, if clients or agents are negotiating, but do not really intend to form a binding contract until they see all of the final details in an integrated writing they can review, then they should include a disclaimer in their emails to the effect that: “This email does not constitute an offer or an acceptance, which can only happen with the client’s signature on a paper contract.”

Third, for an acceptance to be effective, the writing has to be transmitted to the other party.

Fourth, keep in mind that an offer or counteroffer can be verbally revoked, but it should be done in writing so that there is proof of when the revocation occurred.

Brokers and agents need to remember when they are sending emails that instant response and brevity are beneficial in most circumstances, but not when actually making an offer or acceptance. There is a reason that form contracts are provided, since there are many material terms that are important to the parties besides the price. If agents or brokers are not careful, they or their clients may inadvertently bind themselves to a contract with little more than the price agreed, and a court supplying the missing terms per normal practice in the area.

Fifth, brokers and agents should remember that if the property is being bought or sold by a corporation, partnership, limited liability company, trust or estate, the person executing the contract should indicate the representative capacity (i.e., Jane Doe, President of ABC Corp.). Otherwise, the other party may attempt to avoid the contract or may attempt to hold the person individually liable to perform the contract.

Sixth, an additional issue arises with representative capacity and estate sales. The will of the decedent must be “admitted” to the Probate Court, and an executor gets appointed by the Court. The executor generally only has power to sell real property if such a power is included in the will or specifically granted by the Probate Court. The approval of any sale by the Probate Court may be contingent on the court approving the price in comparison to the appraised value, since the executor has a duty to maximize the value of estate owned property. Brokers and agents should be careful that any such contract on estate owned property provides for court approval as a contingency, if necessary.

Seventh, a person holding a power of attorney does not necessarily have the power to buy or sell real estate. In most states, the power of attorney including such a power must be executed with the same formalities as a deed transferring real property in that state. For example, if a deed must have two witnesses and a notary to be effective, then the power of attorney also must have two witnesses and a notary to be effective to buy or sell real estate. In addition, the power of attorney generally must be recorded in the county where the property is located before the offer or acceptance is made.

Some states require that before a consumer can be bound to an electronic signature in what is otherwise a non-electronic transaction (e.g., a transaction that starts with a paper offer), that the consumer must first separately sign a provision in the paper contract that provides part of it can be conducted electronically. Otherwise, the consumer may not be bound. The purpose of this is to avoid surprise to consumers by including a provision for binding electronic signatures in the “fine print” that the consumer may not read.

Finally, Dot Loop, DocuSign® and similar providers seem to satisfy the requirements for “a writing” by providing their electronic version of a party’s signature. The consumer using these services has signed an agreement (often on paper) agreeing to use the service and be bound to it. The other party would be bound if it signs an offer or counteroffer presented with such an electronic signature or if the other party or its agent transmits an email accepting the offer or counteroffer presented by the electronic signature.

The Digital Age has brought many benefits to brokers and agents – including quicker communications and response times, and less reliance on paper. These benefits, however, come with increased risks given the ease and speed with which emails are drafted and sent. Brokers and agents must be careful that neither they nor their clients bind themselves to agreements that were not intended. For advice in your particular state, contact your own legal counsel.

 

About the Author  

Mark L. Rodio, Esq

MARK L. RODIO, Esq.

Attorney At Law
mrodio@frantzward.com

Mark is a partner who focuses his practice on commercial, construction, and real estate litigation and development. He has experience prosecuting and defending a variety of commercial, construction, real estate, title insurance, professional negligence, eviction, foreclosure, and collection claims and appeals. Mark’s construction-related claims experience includes defective work and warranty, defective design, delay and schedule impact, professional negligence, mechanic’s lien and bond claims. He also represents real estate brokers and salespersons in litigation, contract review and regulatory compliance.

Mark currently practices with Frantz Ward LLP in Cleveland, OH, and is an experienced speaker and educator on risk management.

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Category: , ,

Have you ever sold a home that's located on a car-crash prone property? Learn your disclosure responsibilities and… https://t.co/hQeRt2lDhX Realtors®: reduce your out-of-pocket claims costs with the CRES Qualified Home Warranty program from Old Republic H… https://t.co/cV5wEEUNoj