A Deal is a Deal

real-estate-dealMy last post explored what constitutes a valid signature on a contract. In this post, I focus on when a signed contract to sell real estate is enforceable.

Most real estate transactions in Massachusetts start with an Offer to Purchase (“OTP”). The buyer signs the OTP and writes an escrow deposit check. After some negotiation, both parties sign the final version of the OTP. Most real estate agents in Massachusetts use a version of the Greater Boston Real Estate Board’s “standard” form. In the section entitled “Riders,” buyers usually reference an attached mortgage contingency and an inspection contingency. For condominiums, buyers also normally write in a contingency to review the “condominium documents.”

The buyer’s legal obligations
Paragraph 5 of the standard offer states that if the buyer does not “fulfill his obligations,” the worst that can happen is the loss of the initial deposit, usually $1,000. In my experience, buyers very rarely lose their initial deposit. I have never heard of an instance where a buyer had a good faith reason for changing her mind and did not get her deposit back. If the buyer makes a sincere attempt to purchase the property, sellers generally agree to return the deposit if the deal falls apart. It is bad business for a seller to try and hold a buyer’s deposit. The only real damage to the seller is loss of market time. A buyer has to behave extremely badly for a seller to consider retaining a deposit.

The seller’s legal obligations
On the other hand, the OTP is binding and enforceable against a seller. The seller’s only obligation specifically articulated in the standard OTP is in Paragraph 3, which says that both parties “shall sign” a purchase and sales agreement (“P&S”) at some point, generally within two weeks. Real estate and contract law requires that both parties act in “good faith” during the course of the contract, which includes bargaining over the terms of the P&S. Although “good faith” is subjective, a seller cannot change his mind about the deal because he just got a better offer or he just no longer likes the basic terms and conditions. If the seller backs out of the deal, and the buyer files a successful lawsuit, the seller will be required to sell the property to the buyer.

Whether you are a buyer or a seller, do not enter into a real estate transaction lightly. You should have the intention of doing what you can to make it work. Buyers have several avenues of escape if the deal no longer makes sense. Sellers, however, are basically locked in unless the buyer becomes unreasonable.

 

* In most cases, just because the buyer can’t get the deposit back doesn’t mean that the seller automatically gets it. The deposit is initially stuck in the agent’s escrow account. The seller cannot receive the deposit until the escrow agent obtains the consent of both parties. Initially, this can prove difficult. Most often, the parties eventually agree to some compromise based on the threat of litigation and the trouble and time related to fighting over $1,000. I have also seen the parties simply fail to come to an agreement and the money never released.

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In the electronic age, when is a deal a deal?

esignatures-real-estateMassachusetts courts have been grappling with the question of “when is a deal a deal” for a long time. Most communication in real estate is now done via email and other electronic means. It was just a matter of time before a court was faced with whether and to what extent emails, and electronic signatures constitute a binding and enforceable agreement to purchase and sell real estate.

Don’t real estate deals need to be in writing?

The Statute of Frauds is the genesis of the saying “always get it in writing.” The ancient law, originating in England, provides that all real estate contracts must be in writing signed by the party (or agent) to be charged. In the old days, application of the Statute was quite simple. If there wasn’t a written agreement signed in ink, there was no binding deal. Now, email makes it much more complicated.

The UETA
In 2004, Massachusetts adopted the Massachusetts Uniform Electronic Transactions Act (UETA), which provides that parties to a real estate transaction may consent to conduct the transaction electronically via email or electronic signature technology if they use such technology in their dealings (which everybody does these days). The UETA requires some form of electronic signature.  Just what exactly constitutes an electronic signature has not yet been fully determined by the courts. In a recent Superior Court case, Feldberg v. Coxall (May 22, 2012),  the judge ruled that an email signature block or even the “from” portion of the email could constitute a valid electronic signature. Accordingly, the judge found that the buyer would at least have the opportunity to make a case that a binding deal had been reached, despite the seller refusing to sign the hard copy offer. Email signature technology in the residential real estate business

Many real estate agents in Massachusetts still work with hard copy contracts signed in ink, hard copies of contracts,  or, at best, electronic copies (PDFs).  I expect this practice will wane. There are a variety of free Internet services that enable you to sign documents electronically. Check out DocuSign.com (which I was able to register for and use in minutes), e-signlive.com, or rightsignature.com. My office of Keller Williams recently started accepting electronic signatures and takes it one step further by using a company called Dotloop. With this system, all the parties to a transaction can register for access to a common electronic file cabinet. Any party can enter a password to access and electronically sign a document.

A deal is still a deal in Massachusetts, but a signature is not what it used to be.

This article is a modified version of the article “Think Before You Hit Send: Emails May Constitute Binding Real Estate Agreement Without Signed Offer.” Many thanks to Attorney Vetstein for allowing me to use his article.  The Mass. Real Estate Law Blog is absolutely one of the best out there.

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