By Ronald R. Rossi
November 12, 2020
This article piggybacks the article my partner Dave Hamerslough published on October 7, 2020, which clearly and succinctly sets forth the law of late acceptance of an offer or counteroffer.
After reviewing it, I could not help but think of how many cases I have had over the years in which a seller has sold a property twice – and, in two cases, three times.
The lawsuits that arise out of this scenario are especially nasty. What happens is, you have two buyers who both want the same property. They don’t want money damages; they want that specific property. Of course, everyone sues everyone else: the seller is sued by both buyers, the seller typically files a cross-complaint against his agent, and ultimately all of the agents are brought into the litigation. You end up with four parties, all of them pointing fingers at everyone else.
One might ask, how does this situation occur?
Here’s the typical pattern I have seen in these lawsuits. Buyer #1 makes an offer to purchase the property. The seller counteroffers. In the counteroffer, the seller gives buyer #1 three days to accept the countered price. On the fourth day after the counteroffer, another offer comes in from Buyer #2 for substantially more money. On the fifth day, Buyer #1 accepts the counteroffer – but he is too late.
Here’s the typical dialogue that occurs between the seller and their agent:
Seller to Agent: “Wow, a second offer came in. It’s for more money. I want to accept it. Our counteroffer wasn’t accepted within three days, so why can’t we accept the second offer? After all, the first buyer is ‘out of contract’.”
Agent to Seller: “I don’t know. I think you’re right. They didn’t accept within three days, so it’s OK to accept the second offer.”
What we have now is the seller accepting the second offer, with Buyer #1 contending that they did accept the counteroffer (although late) and they are in contract as well.
The following scenario often occurs between Buyer #2 and their agent:
Agent to Buyer #2: “You have accepted the seller’s counteroffer. You’re now in contract. You’ve bought yourself a home!”
Buyer #2 to Agent: “That’s great. Even though we’re paying a little more than list price, it’s our dream house that we’ve always wanted.”
In this scenario, the seller who accepted the second offer thinks they’ve made the greatest coup in the world, but then Buyer #1 wakes up and contends that no one challenged their late acceptance and, on top of that, there was conduct indicating the contract was still in full force and effect.
Both buyers want the house. Both buyers sue for specific performance, which is a lawsuit where the court orders the seller to convey title for the purchase price to the buyer who wins the case.
Obviously, unless the two buyers want to be roommates, we’re going to have two parties suing to obtain title to the same property. This is a no-win situation for the seller. When a residential home purchase is in dispute, buyers are frequently driven by emotions as well as by monetary considerations. In commercial transactions, often one party will accept damages and give up the property, but home purchases are rarely “just business.”
I will never forget one case I handled many years ago in which three buyers were suing to obtain title to an apartment house. The property was sold substantially under market and was an attractive prospect to the potential purchasers, all of whom were apartment buyers. The agent, through the type of sloppy acceptance scenarios described above, actually got the seller into potentially binding contracts with three different buyers. What made the case unique? During the seller’s agent’s deposition in our office, when the agent finally grasped that he had got his client into selling the property three times to three buyers, none of whom were willing to accept damages and walk away, he had a mild heart attack.
I cannot emphasize enough the importance of the steps that Dave explained in his article when it comes to protecting a seller in these kinds of situations. The reason is simple – when two or more people become attached to their “dream home,” their desire for that property increases exponentially, and they will often go to great lengths to make sure they get it, including all-out litigation.
As our late partner, Susan Reischl, used to say, it’s crucial for agents to realize that there’s a “time to stop, look, and listen” if they want to keep themselves and their clients out of trouble.