Recent Revisions to the PRDS Counteroffer Form
The buyer submits an offer in a competitive bidding situation. The buyer expects to receive a multiple counteroffer. The buyer wants the contract to be subject to liquidated damages and arbitration and has initialed those clauses. Offers are to be submitted electronically. As expected, the seller responds with a multiple counteroffer. The Listing Agent does not provide the Selling Agent with the entire purchase offer signed by the seller, including those pages where the seller would initial the liquidated damages and arbitration clauses.
Both the PRDS and C.A.R. contracts require that a counteroffer is required to reach mutual agreement as to whether liquidated damages and arbitration are part of the contract. Both counteroffer forms also contain preprinted language stating that the liquidated damages and arbitration clauses will not be part of the ratified contract unless the seller has in fact initialed those clauses in the buyer’s offer or the issue is otherwise specifically addressed in the counteroffer.
Although liquidated damages and arbitration are frequently signed by both parties and are therefore part of any ratified contract, is it reasonable for the buyer or the Selling Agent to assume that the seller has initialed those clauses in the buyer’s offer? Or is this a situation where the seller, like the buyer in our example, has some specific reason why they do not want one or both of those clauses to be part of any ratified contract?
The PRDS Forms Committee recently looked at this issue and is in the process of modifying the PRDS counteroffer to include language that the buyer is strongly advised to obtain a copy of all of the pages of buyer’s offer, including any addenda, signed by the seller, before responding to the seller’s counteroffer. Obtaining physical possession of all of these documents eliminates any uncertainty as to whether the buyer and seller have a meeting of the minds regarding the inclusion of liquidated damages and arbitration in the ratified contract. It also eliminates any potential misunderstanding between the buyer and seller, or their agents, if this issue is discussed orally before the buyer responds to the seller’s multiple counteroffer.
Let’s assume that the buyer (or any other buyer who received the multiple counteroffer) in this situation responds to the seller’s counteroffer by making a counteroffer of their own. The pre-printed portion of the buyer’s counteroffer does not contain any language that states that the provisions of Paragraph 7 of the PRDS counteroffer (the paragraph containing the multiple counteroffer language) no longer apply and no one on the Forms Committee had ever seen an example of a buyer’s counter to a multiple counteroffer specifically eliminating the multiple counteroffer requirement for the seller to sign in Paragraph 7. Paragraph 7 provides, among other things, that contract formation requires that the buyer sign and deliver the multiple counteroffer to the seller or seller’s agent, that the seller re-execute the multiple counteroffer in the space provided in Paragraph 7, and the seller deliver the re-executed multiple counteroffer to the buyer or buyer’s agent.
The seller counters one or more of these buyer counteroffers to the multiple counteroffer but does not re-check Paragraph 7 (if using the PRDS form), does not use another multiple counteroffer form (if using C.A.R. forms), or responds with a contract form (e.g., addendum or counteroffer) that does not contain any option for a multiple counteroffer. The seller’s counteroffer could be motivated by a number of situations, including a desire to see if one buyer will pay a higher price, or it may be made while the seller is still waiting for a response from one of the buyers who has already received the multiple counteroffer. Alternatively, the seller could sign one of the counteroffers submitted by a buyer while also submitting the above-referenced counteroffer to one or more of the other buyers.
In either of these situations, the seller’s expectation may well be that contract formation with the ultimate buyer will still require the seller to re-execute the initial multiple counteroffer and deliver it as provided for in Paragraph 7 of the PRDS counteroffer. A seller will have a similar expectation if their initial counteroffer was on a C.A.R. multiple counteroffer form.
What are the buyer’s expectations in this situation? Do any of these buyers expect that they are still in a multiple counteroffer situation, or do they expect that a contract is formed when the seller signs that buyer’s counteroffer and/or the last counteroffer submitted by the seller? Are these reasonable expectations, given (1) that there is no provision stating that the language in the seller’s initial multiple counteroffer (e.g., Paragraph 7 of the PRDS counteroffer) has been eliminated and (2) that most counteroffers (including those used by PRDS and C.A.R.) state that all provisions in prior contract documents are incorporated into the counteroffer unless specifically modified or excluded?
The Forms Committee is working on a modification to Paragraph 7 of the PRDS counteroffer to include language stating that if any buyer makes a counteroffer to seller’s multiple counteroffer, and seller responds with either acceptance of any buyer’s counter to the seller’s multiple counteroffer and/or or counters back to one or more of these buyers, contract formation with any buyer shall not occur until that buyer and the seller sign and deliver all counteroffers and all related contract addenda and seller re-executes seller’s original multiple counteroffer and delivers seller’s original re-executed multiple counteroffer to that buyer or buyer’s agent.
This new language will address this situation as long as PRDS forms are used. There is no similar language in the C.A.R. counteroffer or seller’s multiple counteroffer forms.