Chapter 20

Drafting and Presenting Offers

The material on contract law presented in the previous chapters serves as background to the task of drafting a document that expresses the buyer’s (the offeror’s) offer for the property.  A good offer must contain three elements:  an adequate description of the property, a proper method of payment, and any special stipulations that express the conditions that the prospective buyer wants to include.  Unless the buyer is the broker’s client, licensees must avoid giving advice to the buyer while drafting the offer beyond ensuring the three fundamental elements are included.

ASSISTING THE BUYER WITH THE OFFER

In helping a buyer/customer prepare a written offer, the broker or sales associate can pass along information that the seller/client has directed him or her to reveal in addition to disclosing known material defects in the property.  A licensee can also assist the buyer in filling out the form contract to reflect accurately what the buyer wants to include without, of course, advising the buyer about what price and terms to offer.  Other ministerial acts might include reviewing the terms and conditions of the offer with the buyer and the preparation of a “Buyer’s Estimated Costs Worksheet” showing the financial consequences of the offer.  The worksheet would cover down payment, the buyer’s closing costs, and the amount of his or her monthly payments under the proposed financing.

After thoroughly reviewing the offer with the buyer and having him or her sign it, the licensee must obtain any earnest money specified in the offer and give a copy of the offer to the buyer.  The buyer’s copy of the signed offer also serves as his or her receipt for the earnest money.  Failure by a licensee to give a copy of the signed offer to the buyer is a violation of the license law.

PRESENTING THE OFFER TO THE SELLER

Before presenting an offer to the Seller, a licensee should prepare a “Seller’s Estimated Net Worksheet.”  Preparing this worksheet before meeting with the seller makes it easier for the licensee to insure that the seller understands the financial aspects of the offer.  A “Seller’s Estimated Net Worksheet” shows the seller’s costs to sell the property, including paying off any outstanding loans, the licensee’s commission, seller’s closing costs, and how much money he or she can expect to receive at closing after deducting these items from the sale proceeds.

During the presentation of the offer, the seller will also need to understand clearly any obligations the buyer is asking him or her to assume, such as making repairs to the property, obtaining a termite letter (Wood Infestation Report), or giving warranties on the systems.  The seller will likewise want to consider other implications of the offer.  For example, will the proposed closing and move out dates allow sufficient time for the seller to vacate or to have agreed upon repairs made?  If the seller has any legal questions, he or she should have an attorney review the offer before signing it.  Licensees should always avoid giving legal advice to any party in a transaction, including their seller clients.

Once the seller has fully considered the offer, he or she may accept it, reject it outright, or make a counteroffer.  If the seller accepts and signs the offer, the licensee must leave a copy of the contract with him or her and notify all parties involved.

THE PROCEDURES FOR A COUNTER OFFER

The seller may want to make a counteroffer if he or she finds some, but not all, of the terms of the original offer acceptable.  It is important for the seller understand that the counteroffer cancels the original offer and all of the buyer’s obligations under it.  Since more offers might come in before the buyer accepts the counteroffer, the seller should understand that after making a counteroffer he or she would not be free to accept a second offer without withdrawing the counteroffer or making acceptance of the second offer contingent on the counteroffer.  Otherwise, the seller could end up liable to two buyers for the sale of his or her property.

Sometimes a seller will receive more than one offer initially, and he or she may want to respond to two or more of those offers with counteroffers.  To avoid becoming obligated to more than one buyer, the seller should provide in each counteroffer that more than one counteroffer is being tendered and that the first acceptance will render the others void.

Once the seller has made a counteroffer, the original offeror (the buyer) becomes the offeree.  After giving the seller a copy of the signed counteroffer, the licensee can revise the “Buyer’s Estimated Costs Worksheet” or prepare a new one if the counteroffer changed the purchase price or any of the buyer’s costs.  When presenting the counteroffer to the buyer, the licensee must be sure to go over all of the terms of the original offer that the seller has changed.  If the buyer signs the counteroffer unchanged, the licensee leaves a copy of it with the buyer and notifies the seller of the acceptance.

DRAFTING AND PRESENTING OFFERS ON ANOTHER FIRM’S LISTINGS

The first step when cooperating on another firm’s listings is for the selling agent to obtain, before showing the property, a full understanding of the policies and procedures of the listing firm regarding issues of representation such as subagency, drafting offers, handling earnest money, and payment of commissions.  For example, some brokers require that all offers to purchase their listings be on the listing company’s form contract.  By having this knowledge in advance, the selling agent can draft the initial offer in the proper form and perhaps avoid the necessity of a counteroffer.

The second step is for the listing agent and the selling agent to work together.  When involved in an agent‑subagent relationship, the listing agent and selling agent must both work to benefit their client, the seller.  Even where the selling agent does not represent the seller, both licensees have an obligation to work toward obtaining a mutually agreeable resolution of the negotiations.

After the selling agent delivers the offer to the listing agent, the general practice is for the selling agent to explain the offer thoroughly to the listing agent.  Also, normally the selling agent conveys the seller’s decision to the buyer and leaves copies of any documents signed by the seller with the buyer.  The selling agent also helps resolve any problems that may arise before closing.

When the selling agent is a buyer’s broker or a transaction broker, the listing and selling agents must still coordinate their activities carefully.  In this circumstance the selling agent delivers the offer to the listing agent, carefully explains its terms, and then conveys the seller’s response to the buyer.

The third step is the proper presentation of the offer.  The listing agent normally presents the offer to the seller.  If there are points the selling agent feels that the listing agent should stress to the seller, the selling agent makes those known to the listing agent before he or she presents the offer to the seller.

Sometimes the listing agent will ask the selling agent to accompany him or her to present the offer.  The selling agent will only answer questions or clarify terms in the offer when the listing agent or seller asks him or her to do so.  If the seller or listing agent asks for privacy during the presentation, the selling agent must give them that privacy.  The listing agent must always ask for this privacy when discussing the seller’s negotiating position on an offer secured by an agent representing the buyer.  When the selling agent is a subagent, the listing agent can decide whether to include the selling agent in discussions of the seller’s negotiating position.

HANDLING MULTIPLE OFFERS

Sales associates sometimes receive more than one offer to purchase a property.  While the seller is considering one offer, another may come in, or multiple offers may come in simultaneously.  In either event, the law requires the sales associate to present all offers to the seller.  The seller, however, need not accept or reject the first offer before considering the second. When confronted with multiple offers, the seller has multiple options available.  He or she may

HANDLING AN OFFER RECEIVED AFTER A CONTRACT IS CREATED

The license law requires that a licensee present all offers to the seller promptly.  Once the seller accepts the terms of an offer and gives notice of that acceptance, or a buyer accepts the terms of a counteroffer and gives notice of that acceptance, a contract exists.  Both the buyer and seller must abide by the terms of the contract.  If another offer to purchase the property comes in, the licensee must present it to the seller even though a contract already exists.  If the seller wishes to accept the new offer, it must contain a clause making the contract contingent upon termination of the first contract.  If there is no contingency clause contained in the offer, the seller must reject it and make a counteroffer including such a clause, otherwise the seller may end up obligated under two contracts.  The second contract would be commonly referred to as a “back-up contract.”

BREAKING ONE CONTRACT TO ACCEPT ANOTHER

It is against the law for a licensee to induce the seller to break an existing contract for the purpose of accepting another offer, even if the terms of the subsequent offer are more favorable to the seller.  The licensee’s obligation is solely to present subsequent offers to the seller.  If the seller wishes to enter into a back-up contract with a subsequent offeror, he or she may do so, and the licensee may facilitate the same provided the original contract is not breached and the back-up contract is contingent upon a termination of the original contract.