Written by Benny L. Kass
There is a very ancient legal concept called the “Statute of Frauds”. Oversimplified, and as it applies to real estate, this means in order to have a binding contract to purchase (or sell) real estate, there must be a written document. Oral contracts will usually not be enforced by the Courts.
In most jurisdictions in the United States, when a potential buyer makes a written offer to purchase a house, the seller has three options:
the offer can be accepted, in which case there is a contract;
the offer can be met with a counter-offer.
This means that while the seller is interested in pursuing negotiations with the potential purchaser, there are terms in the offer which are not acceptable to the seller.
If a seller makes a counter-offer, the buyer then has the same three options.
Most real estate transactions are smooth, and work out successfully. However, once in a while, a major dispute arises between the parties, and litigation starts. The first thing that any Court will want to determine is whether there is a valid contract for the purchase and sale of the real estate.
In order to have a binding, legal contract, three basic elements are required:
2. Acceptance: The second element needed to make a contract binding is acceptance. Ultimately, there will either be no deal, or someone will accept an offer (or a counteroffer) and there will be a contract. Acceptance must be in writing. However, in recent years, with modern technology, real estate forms have authorized acceptance by fax or by e-mail. However, to be on the safe side, any fax or e-mail must be followed up with a written document containing an original signature.
3. Consideration: The third basic element of a contract is called “consideration”. This is an elusive concept. Generally, it refers to money. The buyer has put down a good faith earnest money deposit with the broker (or with their attorney) and this constitutes good consideration.
However, what happens if no money is put down with the offer? Does this mean that there is no binding contract even if the seller signs the offer? Not really, since consideration also has been interpreted to be “something of value”. In this case, the buyer has stopped looking for another house, in the belief there is a binding real estate contract, and the seller has taken the house off the market, based on that same belief. Thus, there would still be a valid contract, although it is always wise to put down some money as the good faith earnest money deposit when you present an offer to purchase real estate.
The lesson to be learned: put everything in writing. If you as buyer want certain items to convey with the house — such as the washing machine, curtains, or even the lawn mower — make sure that these items are specifically listed in the sales contract. And conversely, if you as seller want to take certain fixtures with you, put that down in writing in the real estate contract.
Don’t leave anything to faith — or to oral promises.