Generally. In its most basic sense, the OREF Sale Agreement is an offer to purchase property; it describes the price and terms of sale, the contingencies, the closing process, and the closing date. Once signed by seller and buyer, the document is delivered to escrow and, in most cases, the earnest money is deposited in trust at the title insurance company.
The purpose of this article is not to discuss the different provisions in the Sale Agreement, but when it becomes “binding”. This is important because after it becomes binding three things occur:
- The buyer cannot be unilaterally withdrawn their offer without risking the loss of the earnest money deposit;
- The seller’s acceptance cannot be unilaterally withdrawn without risking a claim from the buyer for specifically enforcement of the contract; and
- The terms of the Sale Agreement cannot be changed unless all parties agree in writing.[1]
Timing of the Offer. The Sale Agreement contains a place for the buyer to insert the number of days their offer will remain open; after that, it is automatically withdrawn, and cannot be accepted by the seller without the buyer’s consent.
Buyer’s Withdrawal of the Offer. A buyer may withdraw their offer at any time prior to the seller’s acceptance. However, “acceptance” is more that the seller signing the acceptance portion of the Sale Agreement. It also requires that the seller’s signed acceptance be transmitted to the buyer. Until that occurs, it has not become “binding” and may be withdrawn by the buyer.
Seller’s Withdrawal of Acceptance. Conversely, a seller may withdraw their signed acceptance, so long as it occurs before it is transmitted to the buyer or buyer’s agent.
Example ~ Assume the same set of facts as above. Seller reviews it that evening, signs it at 9:00 PM, but does not immediately deliver it to his agent to send over to the Buyer’s agent. On June 2, Seller reconsiders, strikes out his signed acceptance, rejects the offer without a counteroffer, and sends it through his broker to the Buyer’s broker.
Seller is within his rights to change his mind. His “acceptance” did not become legally binding when he signed, since it was not yet delivered to the Buyer or Buyer’s agent. The signed rejection was delivered from his agent to the Buyer’s agent, and that was what became effective and binding. Again, for the Sale Agreement to become a legally binding contract, the Buyer’s offer must be: (a) accepted with the Seller’s signature, and (b) transmitted to the Buyer or Buyer’s agent.
Does the Seller’s transmission of his signed acceptance to his agent make it binding, such that Seller may not withdraw it? No. Just delivery to the Buyer or Buyer’s agent. If Seller wanted to withdraw his acceptance, he could notify his agent not to transmit it. But the moment the Seller’s agent transmits it to the Buyer’s agent, the Seller is bound and cannot withdraw it, without risking the Buyer filing a specific performance claim against him.
Counteroffers. Sellers can make counteroffers to their Buyers’ offers, and Buyers can make counteroffers to their Sellers’ counteroffers. However, a counteroffer is really two events:
- It is a rejection of the original offer (or counteroffer); and
- It is a new offer (or counteroffer).
Once transmitted to the other side, a counteroffer cannot be withdrawn, and similarly, the rejection of Buyer’s offer cannot be withdrawn.
Example ~ Assume the same facts as above. Seller reviews Buyer’s offer that evening, but decides he wants to increase the price to $375,000. He signs a counteroffer and his agent transmits it to the Buyer’s agent at 9:00 PM.
Buyer rejects Seller’s counteroffer and walks away. The 48-hours has not lapsed, so the Seller sends out a written acceptance of the original $350,000 offer and it is transmitted to the Buyer. Effective? No. The Seller’s counteroffer is also a rejection of the Buyer’s original offer; Seller cannot now try to “snap it up” after already rejecting it.
This underscores the strategic significance of making counteroffers; you must be prepared for rejection, and make the decision carefully, mindful of the “Bird-in-the-hand” rule. If the counteroffer is rejected, the maker has no ability to “snap up” the rejected offer.
Manual Delivery vs Electronic Transmission. All OREF Sale Agreements provide in the Definitions/Instructions section, that electronic transmission, i.e. either by electronic mail or facsimile, has the same effect as hand delivery. Thus, the moment one hits “send” on the computer or smart phone, the transmitted acceptance or rejection becomes binding on the sender, just the same as if the parties or their agents were together in person, delivering the written documents.
It’s one thing to sign the acceptance or rejection and sleep on it, and quite another to sign and transmit.
What About Mailing? The concept is the same, except the signed offer or counteroffer becomes binding only when deposited in the mail. Metaphorically speaking, the documents is “irretrievable” the moment one hits “send” on the computer and the moment one “deposits” it in the mail.
Take-aways. Here are the rules:
- An offer may be withdrawn by a Buyer at any time before the Seller transmits the signed acceptance (or manually delivers it, or deposits it in the mail).[3]
- This applies even if the Buyer does not know that the Seller transmitted their signed acceptance. In other words, even if the Buyer does not check his/her email or mailbox, transmission or mailing of the Seller’s signed acceptance prevents the Buyer from withdrawing their signed offer.
- A signed acceptances may be withdrawn by a seller at any time before it is transmitted or mailed; but after transmission or deposit in the mail, it’s too late for the seller to withdraw it, even though the Buyer is unaware of the acceptance.
- These rules work exactly the same way with counteroffers, and counteroffers to counteroffers.
- Timing is everything; if you’re unsure, don’t transmit your acceptance or rejection to the other side, because once you do so, you cannot withdraw it. If you’re sure, transmit your acceptance or rejection immediately after signing.
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[1] This is not to say the transaction cannot be legally terminated according to its terms. For example, if a contingency failed, say the professional inspection report is rejected by buyer, who gives the seller timely written notice of withdrawal. This can be done without risking the loss of the earnest money deposit.
[2] Note that the OREF Sale Agreement provides that delivery to a party’s agent is the same as delivery to their principal.
[3] Obviously, if the acceptance or rejection is manually delivered, it becomes binding at that moment in time.
