Best of the Hotline: Is signed seller agreement binding?

FACTS:  The buyer’s offer was good enough to elicit a counteroffer from the seller.  Seller’s counteroffer was dated, initialed and signed at all the appropriate places.  Upon receipt, the buyer’s agent discussed the changes with buyer who accepted the changes.  The buyer, who was out of town, would sign the document upon her return in three days.  This was communicated to the listing agent who passed the good news on to the seller.

Shortly before the buyer’s return, a second offer was submitted by a stronger buyer.  This buyer’s agent was told of the previously negotiated agreement, but insisted that because the buyer had not executed the amended contract, no agreement existed!  This buyer agent so vociferously pronounced her legal conclusion that she convinced the listing agent to accept the second offer and review it with her seller.  The seller preferred the second offer and asked his agent to “git-r-done.”  The listing agent was certain only that she was sticking her neck out, though she was uncertain as to which noose would be her demise!

Q: Because the buyer had not signed the amended agreement of sale, could the seller rescind his signed counteroffer and then sell to buyer #2?

A: The statute of frauds in Pennsylvania provides that an agreement of sale for real estate may not be enforced unless it is in writing and signed by the party to be bound (this is an oversimplification, but conveys the point nicely). In our factual situation, it is the buyer (buyer #1) who seeks to enforce the agreement.  In other words, the buyer seeks to bind the seller to the terms of the document signed by the seller.  Under the statute of frauds, it may be enforceable!

But you say “the buyer never executed the final document.”  And you are correct.  The buyer, however, is not seeking to escape the terms of a document the buyer did not sign.  If the buyer were trying to avoid being bound to the contract, she could do so.

If you incorrectly answered the question, you are not alone.  Pennsylvania REALTORS® are aware that the agreement, above the signature lines, states “when signed, this Agreement is a binding contract.”  It certainly is and you are now aware, by virtue of this answer, that it may be binding on the party who signs and delivers it even before fully executed by the other party.

A similar scenario that plays out quite often in real estate occurs when negotiations occur orally and the parties state, “we have a deal.”  If a subsequent offer comes in before either buyer or seller has signed the agreement, then it is not enforceable against either party.  Consider the example of the buyer who submits an offer and, before the sellers signs, hears back “we have a deal.”  If the seller receives a subsequent offer before the seller signs, then there is no writing to which the seller can be bound.

While the buyer may not be able to sue for specific performance, the seller, or listing agent, may still find themselves on the wrong end of a lawsuit.  In Pennsylvania, the breach of an oral agreement is a viable claim, but only to the extent that the non-breaching party has actually incurred financial losses attributed to the other party’s breach.  In some instances, a buyer may sue for the lost benefit of the bargain – in other words, the value of the house lost.  There are no cases in Pennsylvania of which we are aware, so we cannot predict what a court would do with such claims.  Do you really want to be the one to find out?

If you find questions relating to the statute of frauds, delivery and execution to be confusing, that is understandable.  Many attorneys are confused by these concepts.  One way to guard against this  confusion leading to a lawsuit is to insist that when a client seeks to back out of an “agreement,” whether oral or signed by one party, is to require that your client seek the opinion of their legal counsel before presuming anything about the binding nature of that agreement.