When Does an Offer Become a Contract?

The Standard Form 2-T is called the “Offer To Purchase and Contract” for good reason. The form begins its life as an offer usually submitted by a prospective buyer to a seller through their respective agents. The offer may later become a contract if and only if all of the criteria set forth in the Statute of Frauds are satisfied.

In order to satisfy the Statute of Frauds for the creation of a binding real estate sales contract, there must be a written agreement signed by all parties and the fact that it has been signed by all parties must be communicated to any party against whom enforcement is sought. Until all of these criteria have been satisfied, there is no contract.

In our investigations of complaints filed against brokers, we sometimes find that brokers have informed buyers, sellers, and/or other brokers that the sellers have “orally accepted” an offer or that there is an “oral or verbal agreement” between the sellers and buyers. Use of such terms is misleading and therefore inappropriate, because these terms can lead others into falsely believing that a binding contract has been formed.

When a seller says, “I will accept that offer,” the seller is orally expressing a willingness to accept the offer. However, acceptance means that a seller has signed a buyer’s written offer without making any changes. Therefore, expressing a willingness to accept an offer is not equivalent to accepting (i.e. signing) a written offer and does not create a contract. Until a seller signs a buyer’s written offer without making any changes and communicates that fact to the buyer (or buyer agent), no contract has been formed and the seller is free to consider and accept an offer from another buyer. For these same reasons, an oral offer can never become a contract and a buyer agent should encourage their buyer-clients to reduce all offers to writing.

When a buyer agent submits a written offer and the listing agent replies that the seller has “accepted” the offer, the buyer agent should immediately ask the listing agent, “Have all the sellers signed the offer?” If the listing agent replies, “No,” then the seller has NOT legally accepted the offer, and the buyer agent should not inform the buyer that the seller has accepted the offer. If the listing agent replies, “I don’t know,” then the broker cannot be certain whether a contract has been formed, because although the so-called “acceptance” has been communicated, it is not clear whether the offer has been signed.  

Example: You’re a listing agent and receive a written offer from a buyer or buyer agent. The seller and buyer negotiate orally through you and the buyer agent via phone or text until they come to mutually-agreeable terms. The seller has signed nothing. Then you receive a written offer from a second buyer or buyer agent. Until the seller signs a written offer from the 1st buyer without making any further changes and you communicate that fact to the first buyer (or buyer agent), the only thing you can tell the second buyer (or buyer agent) with your seller’s permission is, “There is an offer on the table.” Saying that there is a “verbal or oral contract” or a “verbal or oral agreement” is improper, because the use of the term “oral” contract or agreement falsely implies there is a binding agreement between the seller and the first buyer. Use of the term “verbal” agreement is ambiguous because “verbal” simply means “in words” – which might be oral or might be written, and again can imply that there is a binding agreement when in fact there is not. Such an implication can discourage the second buyer from looking at the property and making an offer.

A seller’s agent has a duty to get the best price and terms for the seller. One way to do this is by soliciting as many offers as possible. If the seller’s agent misleads a second prospective buyer into believing there is a binding agreement between the seller and the first buyer;  thereby discouraging the second buyer from making what could be a better offer than submitted by the first buyer, then the seller’s agent is doing a disservice to the seller-client and giving an unfair advantage to the first buyer to the detriment of the second buyer.

Until all of the criteria set forth by the Statute of Frauds have been satisfied, the following statements are prohibited:

  • The seller has orally accepted the offer.
  • We have an oral agreement.
  • We have a deal.
  • We’re under contract.
  • The property is sold.
  • The property is under contract.

It is a misrepresentation of material fact, and therefore improper, for a broker to inform a buyer that their offer has been accepted when the seller has not signed an unchanged offer. North Carolina General Statutes § 93A-6(a)(1), (8), and (10) authorize the Real Estate Commission to pursue disciplinary action against a broker who misrepresents a material fact, is unworthy or incompetent to act in a manner which protects the public, or engages in improper conduct, respectively.  We recommend that you educate yourself, your clients and your customers regarding the requirements for forming a contract.

The Commission publishes a variety of brochures to help brokers and consumers better understand various aspects of real estate transactions. One such brochure is entitled, “Questions & Answers on: Offer & Acceptance.” This brochure will help you and your clients better understand this part of the home-buying process. If, after reading this article and the aforementioned brochure, you are unclear regarding the criteria for forming a valid and binding contract and how to communicate this process to buyers and sellers, then you should immediately consult your Broker-In-Charge as this is an extremely important part of every real estate sales transaction.