July 1st - 2011

Let’s make a deal: Offers, counter-offers and the acceptance of offers

Success in real estate – as in hockey – is all about playing your best and maximizing your strengths to try to beat your opponents.

Success in real estate – as in hockey – is all about playing your best and maximizing your strengths to try to beat your opponents.

Looking across the rink, you realize that the other team may have better skates, but that doesn’t mean they’ll win. In both real estate and hockey, the material you have to work with is an important element of success, but it’s not the only one. Your confidence and skill also factor into the outcome.

“The skill of the real estate professional can help to put things into perspective for buyers and sellers, especially when offers are more complex,” says Rennie Lowes, a REALTOR® from Peterborough. “People can sometimes get caught up in the process and they want to win on some small point, even at the expense of losing the deal. A skilled REALTOR® will ask them something like, ‘Are you willing to jeopardize the whole sale over $1,000, or can we negotiate and resolve this?’”

Buyers and sellers look to REALTORS® for their knowledge and skill to lead the process of a purchase or sale. A clear understanding of offers, counter-offers and the acceptance of offers is essential to the successful completion of an Agreement of Purchase and Sale – as are the regulatory and ethical requirements inherent in all real estate transactions.

When a home is listed or advertised, the sellers are indicating that they will consider offers. However, they may be testing the waters and are generally not tied to the list price or obligated to accept any offer at all.

Offers come with an irrevocability clause, meaning that once an offer is presented to the seller or the seller’s agent, it becomes binding and the buyer cannot withdraw it until after the date and time specified. The buyer’s offer presents a firm deadline, and if the seller does not accept before then, the offer expires and becomes void. Meanwhile, the sellers are free to let deadlines pass and offers expire while they consider other offers.

Legally, sellers are not required to acknowledge receipt of an offer or to formally reject it, but REALTORS® may want to use OREA’s Standard Form 109 for the Acknowledgement of Offer Presentation, which demonstrates that they have reviewed all offers with the seller. It is good business practice to try to obtain an acknowledgement of receipt of offer. If someone later claims they did not receive their copy of the document, Form 109 proves that the REALTOR® presented the offer to the seller. This is particularly helpful for REALTORS® faced with multiple offers.

Initial offers are not typically accepted outright, but can launch a negotiating process whereby counter-offers are introduced. It is usually the seller who counters the buyer's offer. Although a seller can generally list a property and consider offers without any sort of obligation to sell, when a seller makes a counter-offer, that offer becomes binding.

“I once completed a deal that went back and forth 10 times and took four months before both parties agreed,” says Lowes. “One of the risks is that the longer negotiations go on, the greater the chance of failure. It’s about trying to understand what the other side wants and then helping your clients put things into perspective.”

Once a seller responds with a counter-offer, the buyer’s original offer is deemed to have been refused and becomes void, regardless of the first deadline. Meanwhile, the irrevocability clause also affects counter-offers, which contain a deadline of their own. The buyer can also counter subsequent offers, and the process can go back and forth with deadlines and voided offers until one of the two parties accepts.

Price, closing date and inclusions, in that order, are usually the biggest obstacles to making a deal, says Lowes. Although price is usually the crucial sticking point, other factors can make or break a deal. In a successful real estate deal conducted by Lowes, he represented first-time buyers. “The seller received competing offers, but we came up with a good price and a quick closing date only three or four weeks away,” he says. “Although I understand that competing offers may have been presented at a higher price, the sellers chose our buyer’s offer because the deal would be done sooner.”

Inclusions can sometimes pertain to unusual items, but it is unfortunate when they become deal-breakers, says Lowes. “I worked on one deal that came down to the dishwasher,” he says. “The buyer wanted it but my seller didn’t want to leave it. Although I advised him to leave it, the seller refused and we couldn’t make a deal. Two months later, he ended up selling to a different buyer for $2,000 less than the first offer. He wanted to win on his terms, but he ended up losing out on the better deal.”

If a buyer wants certain chattels included in a deal, these items must be negotiated and specified in the offer, he says. “I’ve met prospective buyers who wanted a tractor included in the sale of the property, not realizing that a tractor can be worth another $20,000 or more.”

Anything with sentimental value -- even an interior door frame -- can be an issue in a negotiation, in Lowes’ experience. “This door frame had sentimental value for the sellers because over the years they had marked their children’s height on it progressively and wanted to take it with them,” he says. Sellers may want to remove sentimental items from their home before listing it in order to prevent negotiation problems with those items.

The buyer or seller can refuse counter-offers and continue negotiating until a deal is accepted. Provided that a seller has not accepted an offer, he or she is free to consider and accept another offer.

“Acceptance” is the agreement to the terms laid out in the offer or counter-offer. If one party says “I accept all of the terms, except this one provision,” this is not an acceptance – it is another counter-offer. Clear communication is required between two sides to ensure that an offer is accepted within the time frame of the irrevocability clause. If the buyer or seller accepts, that offer generally can’t be revoked. If disputes arise over acceptance, the matter should be resolved by lawyers for the buyer and seller.

The 2002 REBBA Code of Ethics outlines the obligations of registrants around offers and counter-offers. The code touches on everything from the need for honesty, integrity and fairness; to the communication of relevant information and conveyance of offers, counter-offers and other documents in a timely manner; to advising clients/customers to seek advice from other professionals when something is beyond the scope of a registrant’s expertise. The goal is to ensure that REALTORS® act in the best possible interest of those they represent.

Documentation and clear communication are crucial to an understanding of all contracts, and offers and counter-offers are no exception. REALTORS® must protect their clients/customers. They have fiduciary as well as code obligations to explain all forms and clauses in the offers. Real estate professionals must ensure that their clients understand the legal implications of their agreements and empower them with the information needed for the best possible deal.

Everything you ever wanted to know about offers, counter-offers and acceptance of offers can be found in the OREApedia section on www.orea.com. In the Members Only section, check out the section titled Offers, Counter-Offers and Accepting Offers.

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Ontario Real Estate Association

Jean-Adrien Delicano

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416-445-9910 ext. 246