The ease and convenience of negotiating real estate transactions electronically may come with hidden pitfalls. Details and terms communicated in a broker’s e-mail or text might be considered by a court to be binding. Brokers and their clients want immediate responses regarding Offers to Purchase, amendments, or due diligence requests, especially in a fast-paced market. Some say we live in an “instant gratification” era; but at what risk?
A real estate contract must be a written agreement, signed by all parties, and then the fact that it has been signed must be communicated to all parties in order to satisfy the Statute of Frauds and contract law. However, many transactions today are negotiated quickly via e-mails and texts between listing brokers and buyer agents and between those brokers and their clients, before being reduced to writing on contract forms. Communications go back and forth between brokers expressing their client’s offer, counter offer or responses to the proposed terms of the transaction. Even after a contract is signed, negotiations continue about additional items including extensions of various dates, repair requests, additional inspections, and possession of the property.
The danger is, what a broker communicates electronically might be deemed binding. E-mails and electronic communications can become the subject of lawsuits and damaging to the parties involved. In a 2012 Massachusetts case, Feldberg, et al. v. Coxall, the buyer alleged that the emails exchanged by the buyer’s and seller’s attorneys evidenced the creation of a contract. The judge cited the Massachusetts Uniform Electronic Transactions Act saying “an e-mail signature block or even the “from” portion of the email may constitute valid electronic signatures in cases where the parties are conducting the transaction electronically.” Even though the seller argued that no contract was signed, the ruling opened up the possibility for a court to look at whether the e-mails constituted a binding agreement. (The parties eventually settled the matter out of court).
In North Carolina, the Uniform Electronic Transactions Act, Article 40 of Chapter 66 of the North Carolina General Statutes, can be found at the following link: https://www.ncleg.net/enactedlegislation/statutes/html/byarticle/chapter_66/article_40.html
According to this statute, when deciding if the parties have agreed to handle the transaction electronically, the context and surrounding circumstances, including the parties’ conduct, is considered. The Act also states the requirement for a contract to be “in writing” may be satisfied if the provider delivered the communication in an electronic record capable of retention.
Although to date, we know of no North Carolina Court that has held that electronic communication between brokers constituted a binding contract, by negotiating the possible terms of a transaction electronically, real estate brokers might be putting themselves and their clients in jeopardy and not realize it until it is too late.
So, how can brokers protect themselves when negotiating electronically on their client’s behalf? Consider the following when communicating via email:
You may want to include in your communications that your client must approve the terms of the transaction; negotiations are simply preliminary until all parties sign the agreement and properly communicate their acceptance. You might also state that your email or text does not create acceptance or a binding contract.
At one time, Offers to Purchase were delivered by hand, in their entirety, initialed, signed and dated. Counter offers with clearly marked changes, initialed and signed by all parties, were also hand delivered. Today, most negotiations take place electronically, so taking steps to communicate clearly and safely by electronic means is essential.
When a broker proposes or responds electronically to possible transaction terms on behalf of their client, it is imperative they use non-binding language to protect both themselves and their clients from possible pitfalls.
Additionally, once that written contract is signed and acceptance is communicated, don’t assume that subsequent negotiations are handled differently than the initial contract negotiations. Any changes to the written contract still require signatures and communication of acceptance. If your buyer client has submitted a Due Diligence Request and Agreement, and through emails the Listing Broker has described what the seller will repair, but the seller has not signed the document, don’t assume that the seller is bound to the terms of the agreement or to do the repairs. Because it is possible that the brokers’ communications could bind the parties, it is best to take care that the parties are not bound to repairs or other agreements by the brokers’ electronic communication. Instead, make sure that the contract documents are modified to reflect the parties’ agreements.