Fact Pattern: A buyer submits an offer on a 10-page C.A.R. Residential Purchase Agreement (RPA) form. The seller issues a Seller Counter Offer (SCO). According to paragraph 2A of the SCO, the seller’s counter offer will expire at 5 p.m. on April 5, 2019, unless the buyer signs and returns the SCO, and a copy is personally received by the seller. The SCO form has a line for the listing agent to insert her name to become an authorized recipient of the SCO signed by the buyer. That line has been left blank. Right before the expiration of the SCO at 5 p.m. on April 5, 2019, the buyer’s agent sends an email to the listing agent, which includes the return of the SCO signed by the buyer. However, unbeknownst to the buyer and buyer’s agent, starting at about 2 p.m. that afternoon, the listing agent has intentionally stayed away from her phone and computer to avoid receiving the SCO signed by the buyer before 5 p.m.

Multiple Choice Question: Has the seller and buyer formed a contract? Pick the best answer:

A. Yes.
B. No, but the listing agent has acted illegally.
C. No, but the listing agent has acted unethically.
D. No.

Answer: Answer A is wrong. No contract has been formed. The SCO clearly states that, to create a contract, the buyer must not only sign and return the SCO, but the document must be personally received by the seller before its expiration. For personal receipt to generally occur, the seller’s hand must somehow physically touch the SCO, or for an electronic communication, the seller’s eyes must somehow see the SCO. In our situation, we do not have a contract because the seller did not personally touch, see, or otherwise receive the signed SCO before 5 p.m. on April 5, 2019.

Answers B and C may be correct if there is more to the story. Perhaps the listing agent was actively trying to double-end the deal by thwarting the buyer’s efforts and keeping the seller in the dark in hopes of manipulating the seller into selling to another buyer for less money. Those actions are illegal and unethical. But those things did not necessarily occur. After all, the seller’s side could have just gotten word at 2 p.m. that another offer was being submitted, and as a result, the seller could have instructed the listing agent to stay away from her phone and email until 5 p.m. In that situation, a listing agent would not be acting illegally or unethically, although, if she was one of our agents, I’d have encouraged her to just be upfront with the buyer’s agent.

Answer D is the best answer. The seller and buyer have not formed a contract, because the seller did not personally receive the signed SCO before 5 p.m. For buyers’ agents, this answer may seem harsh and unfair. However, the 3-day expiration of an SCO under paragraph 2A is not a sure thing anyway. Point out to your buyers that paragraph 2A is further modified by paragraphs 2B and 2C. Instead of having the listing agent stay away from her phone and email, a seller could have just as easily withdrawn the SCO (paragraph 2B) or accepted another offer (paragraph 2C) at any time before the buyer returned the SCO.

Extra Credit: If the seller instructed the listing agent to stay away from her phone and email, does the buyer have a legal claim against the seller for acting in bad faith? Answer: No. The duty to act in good faith and deal fairly is generally owed by a party to a contract. In this situation, we do not have a contract.

-Thank you to Dean Stalter (Broker of Record) for suggesting this week’s legal tip.

Copyright© 2019 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of April 8, 2019. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.