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Counteroffer Or Inquiry: The Words We Use Can Make A Difference

By David Hamerslough

November 18, 2020

Communication between agents after an offer or counteroffer has been made but before there is a response occurs frequently. Most of the time, these communications do not result in a disagreement over what was said or intended, and a contract is ratified. When there is a disagreement, however, the words that were used in those communications can have a significant impact. The following facts illustrate this point.

Buyer submits an offer. The offer includes an appraisal contingency and identifies a specific title company to handle the escrow. The sellers’ agent contacts the buyer’s agent by phone, and the sellers’ agent’s recollection of the conversation is that they asked whether the buyers would consider removing the appraisal contingency and using a different title company. The buyer’s agent stated that they would have to discuss these issues with the buyer but the agent was unable to do so at that time. Later that day, the sellers decide that they are going to accept the offer as it is written. The offer is signed and delivered to the buyer’s agent.

Later, the buyer’s agent contacts the sellers’ agent and claims that there is no contract, based on the buyer’s agent’s recollection of the conversation that had occurred earlier in the day. The buyer’s agent’s recollection is that the sellers’ agent stated that the sellers would not accept the offer if the appraisal contingency remained in it and that a different title company needed to be used. The buyer’s agent claims to have told the sellers’ agent that there was no deal and that the buyer was revoking their offer.

The sellers’ agent’s response is that the parties are in contract and the sellers expect the buyer to perform. The buyer fails to perform. The sellers resell the property at a lower price and pursue a claim against the buyer for breach of contract.

The outcome of this dispute will turn on a number of facts, including whether the communication between the two agents constituted an inquiry from the sellers regarding the appraisal contingency and title company or a counteroffer.

A valid acceptance of an offer must be absolute and unqualified; it must be unconditional and cannot add new terms or conditions. An offer that is qualified by new terms and conditions constitutes a counteroffer and results in the rejection – and termination – of the original offer. Once a counteroffer is made, the original offer may not be accepted unless the counteroffer provides that the original offer shall not be terminated, despite the counteroffer having been made.

In contrast, an inquiry or request as to whether the buyer would modify the offer does not constitute a counteroffer and rejection of the original offer. If so, then the sellers had the right to accept the buyer’s offer as long as it had not been revoked or had otherwise expired.

Any analysis of this type of dispute will turn upon, among other factors, the words that were used, the intent of the parties, the materiality of the term(s) in dispute, whether the term(s) was a condition or a covenant, and, if it was a condition, whether that condition was already implied in the offer, etc.

What is important to remember is that all of these factors will be evaluated in light of other statements and conduct of each agent as well as those of their managers, clients, and other third parties. Emails and text messages between the agents, the agents and their clients, the agents and third parties (e.g., escrow officers, lenders, etc.) will be reviewed to either confirm or refute what was stated, how it was understood or interpreted, the timing of not only the communications but also the subsequent actions allegedly taken in reliance on these statements, etc. Subsequent statements and conduct will be evaluated to determine if those are consistent or inconsistent with the interpretation that is being asserted. Any analysis will also include assessing which party has acted reasonably and fairly and what was actually motivating that party’s statements and conduct.

In any such communications, use your words carefully. If you intend to make an inquiry or request, be sure to frame it clearly as such. If you are going to revoke an offer, that revocation should be made in writing to avoid any possibility of misunderstanding. Confirming in writing what was discussed immediately after any such conversations can prevent disputes about what was discussed. Make sure that your email and text communications with another agent are consistent with your communications with your client. Any inconsistency will be used to undermine the position that you take. Avoid characterizing another party’s behavior or motivation in a derogatory or inflammatory manner. As always, be sure to preserve all emails and text messages relating to a transaction.

These factors and this analysis raised in this type of dispute apply in a situation where the communication occurs before any alleged acceptance. Although the factors impacting the outcome are similar, a different analysis applies if there is first an unqualified acceptance of the offer and then a request for a change in its terms is made after that acceptance. In that situation, the issue will be, among others, whether there was an express or implied repudiation/anticipatory breach of the contract, what election (if any) is made by the non-repudiating party, whether that repudiation is retracted, whether that retraction takes place before any change in position by the non-repudiating party, etc.

If there is a dispute between the agents and/or the parties as to the status of the contract, the agents should cease any further commentary with each other and immediately advise their clients, in writing (such as an email), that they should not take any further action until after they have consulted with their own qualified California real estate attorney.