What to Watch Out For When Making or Accepting an Offer to Purchase Real Estate
Summary
There are three essential elements that must be present to give rise to a contract:
1) An Offer – a proposal that communicates a willingness to be bound to the next communication – is usually made by the Buyer.
2) Communication is key! An offer only counts if it is clearly communicated to the other party.
3) Acceptance: must exactly match the terms of the offer.
Otherwise, a counteroffer can be made to propose new terms and confer the power of acceptance onto the initial offeror. Note: a counteroffer revokes the prior offer(s).
An offer/counteroffer and acceptance should be done in writing!
Are you planning to buy or sell real estate? Here are the things you should know about the offer (and negotiation) and acceptance process.
Offer
An offer is a proposal to enter into an agreement; critically, an offer communicates a willingness by the offeror (person making the offer) to be bound by the next communication from the offeree (person receiving the offer).
When a property owner puts a “For Sale” sign on his lawn, this is not an offer (because he’s not necessarily willing to sell upon receipt of the next communication). Instead, this action is an “invitation to treat,” which is meant to notify third parties that the property owner is open to receiving offers. Therefore, the potential Buyer is the person who most often makes the offer by preparing a contract, which includes the conditions of the purchase and other terms and fundamentals.
Communication
You’ve probably heard the phrase “communication is key.” That’s certainly true when making an offer. It is not enough for a Buyer to merely decide that he wants or intends to buy a property. He must clearly communicate his offer to the Seller.
Acceptance
Acceptance of an offer conveys willingness and intention of the offeree (the person receiving the offer) to agree to be bound by the offer. Critically, though, acceptance must exactly match the terms of the offer. This is called the mirror image rule or consensus ad idem.
(It almost goes without saying that acceptance must be communicated to the offeror. But for clarity’s sake, we’ll say it again – communication is key)!
Note: in the digital age (unless parties agree otherwise), communication of offers and acceptance can be expressed almost instantaneously via electronic channels like email or fax.
Example
For example, Woody communicates an offer to buy Buzz’s property for $1,000,000 with a completion date of April 1st. Buzz communicates his acceptance of Woody’s offer. This scenario successfully satisfies all stages of offer, communication and acceptance.
But, what would happen if Buzz was happy with the price, but wasn’t ready to sell until a later date? Or, conversely, what if Buzz was fine with the date but didn’t like Woody’s offered price? In any case where Buzz wants to change something in Woody’s offer, Buzz would need to make a counteroffer. Buzz’s communication of a counteroffer to Woody removes Woody’s initial offer and “turns the tables” so that the power of acceptance of the new terms is now placed upon Woody (with Buzz being willing to be bound by the next communication after he presents his counteroffer to Woody).
*Note: if Woody declines the counteroffer but Woody then signals an interest in continuing further negotiations with Buzz, this could be interpreted as Woody reviving his initial offer to purchase.
All communication of offers, counteroffers and acceptance should be done so IN WRITING in order to prevent misunderstandings and misremembering of terms. In BC, notaries and lawyers will almost exclusively require written proof of an agreement to transfer property (most commonly in the form of a contract) before facilitating a property conveyance.
A Realtor can provide assistant with making an offer to purchase property and/or reviewing and facilitating counteroffers and/or acceptance of an offer. But, if you need legal advice on your contract before you accept it, feel free to give us a call!
