Don’t Get Burned by the Hot Residential Real Estate Market – Use Extreme Caution! Thumbnail

Don’t Get Burned by the Hot Residential Real Estate Market – Use Extreme Caution!

For Owners considering selling residential real estate, it is easy to get excited by the headlines about the “hot” real estate market. Stories of multiple offers, thousands of dollars above asking price, have been common since 2020. And while rising interest rates may help to cool off the market, Sellers need to be careful that they do not get burned when selling residential real estate. Buyers, too, need to be careful that they do not bind themselves to multiple contracts.

Most Residential Transactions Do Not Involve Legal Counsel at the Start
In most commercial transactions, both the buyers and sellers have legal counsel. That is not the case for most residential real estate transactions. While real estate licensees can advise clients on buying and selling, they cannot provide legal advice – other than the advice to retain a lawyer. 

When Do You Have a Binding Contract?
One increasingly common issue that requires legal counsel is whether and when the parties have formed a contract. This question arises when the Seller is entertaining (or may have accepted) an offer from Buyer #1 and a higher or better offer is then presented from Buyer #2.

In Ohio, contracts for the sale of real estate must contain all the essential terms in writing and signed by the party against whom enforcement is sought. So, if a Buyer wants to enforce a contract against a Seller, there must be a writing signed by the Seller. If the Seller wants to enforce a contract against the Buyer, there must be a writing signed by the Buyer.

What is a writing and what is a signed writing?
A writing can be any of the following: a written contract, an email or a text message. A signature can be accomplished by pen on paper (including facsimile copies), electronic signature platforms like Dotloop® or DocuSign®

Is There an Unconditional Acceptance?
Generally, acceptance of an offer must be unconditional and transmitted to the other party in the manner specified in the offer. If no manner is specified, acceptance must be made in a reasonable manner to be received by the other party. If a Seller makes material changes to a Buyer’s offer, that is a counteroffer, not an acceptance. Likewise if a Buyer makes material changes to a Seller’s counteroffer.

What are the Essential Terms?
The essential terms include the identity of the property, the price, and the party’s signature. If all those essential terms are contained on a cocktail napkin, a court will enforce the cocktail napkin as a contract. Having a few drinks also likely will not excuse a party from signing an ill-advised contract, so I recommend not making any big decisions if you have been drinking (or are still sitting at the bar). Yes, this has happened.

Use Extreme Caution – Hot!
So, where do the problems arise? Situations like:
  • Buyer #1 is told either verbally or by text or email that “we have a deal,” and then the Seller receives a higher offer from Buyer #2. Did the text or email qualify as a signed writing sufficient to form a contract with Buyer #1? 
  • What if Buyer #1 makes an offer, the Seller counters at an increased price, and Buyer #1 accepts the increased price but changes the date for possession? Have the Buyer and Seller agreed on all material terms? 
  • What if only 1 of 2 Sellers has signed the contract?
  • What if the Buyer finds another property they like better while their contract is pending with the Seller?
  • What is the Buyer’s financial circumstances change? What if they Buyer changes their mind?
All of these situations highlight the need for parties to have counsel in residential real estate transactions. In the meantime, parties should be careful not to form any contract before they consult legal counsel. If the party wants to make or accept a second offer, it should expressly include that it is contingent on the release of any first offer or contract. As always, an ounce of prevention is worth a pound of cure. When in doubt, ask your lawyer.

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